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  1. 1. EGEE 21O3: MALAYSIAN ECONOMY<br />RESEARCH TOPIC<br />Will the replacement of sales tax collection with goods and services tax (GST)<br /> affect the government’s revenue?<br />
  2. 2. INTRODUCTION<br /><ul><li>Taxation is a very important tool in regulate the economy.
  3. 3. Government proposed to implement Good and Services tax(GST) a measures that can strengthen and stabilize its revenue base for the future.
  4. 4. GST also known as Value Added Tax (VAT).
  5. 5. Government of Malaysia proposed implementation of multi-stage consumption tax(GST) to replace the current single-stage sales tax and services tax.
  6. 6. GST is collected at every stage of production process.
  7. 7. The amount collected at each stage is based on value added at that stage.
  8. 8. In simplest form, it means people will pay tax each time they purchase a good or services.</li></li></ul><li>GOODS & SERVICES TAX IN MALAYSIA<br />Background<br /><ul><li>2005 Budget
  9. 9. GST will be implemented on January 1, 2007
  10. 10. For replace sales tax and service tax
  11. 11. February 22, 2006
  12. 12. Implementation has been delayed
  13. 13. give the trader time to make changes to business processes, computing systems and provide training to staff
  14. 14. 24 November 2009
  15. 15. PM has announced that the GST will be implemented in Malaysia and the Bill will be tabled GST in Parliament in December 2009
  16. 16. First time reading Bill GST - December 16, 2009
  17. 17. Second and Third Reading time - March / April 2010</li></li></ul><li>OBJECTIVES<br />1. To analysis the impact of GST on governments revenue.<br />2. To analysis the impact to poor people due to the implementation of GST.<br />3. To analysis the implementation of GST on inflationary pressure.<br />
  18. 18. PROBLEM STATEMENT<br />To impose GST in Malaysia will affect government’s revenue<br />With a budget deficit at 7.6 % of the US$195 billion (RM663 billion) GDP this year government implement the broad-based tax.<br />The GST will burden poor <br />GST will effect the poor/low-income households. Poor/low-income households spend about 80% percent of their income on food, compared to 20% in higher-income households. Poor/lower-income households earning power has diminished over the years and this will further challenge their stressed and overdrawn financial position. <br />The implementation of GST increase inflationary pressure<br />Fears that GST will increase the price of uncontrolled items indirectly.<br />How relevant minister in minimize the inflation to the lowest level.<br />
  19. 19. Literature Review<br /><ul><li>Many articles suggest that GST is needed because not only to raise more revenue for the government, but also to diversify its sources of income where our government has a narrow revenue base (Mohamed Abdul Kareem, 2009).
  20. 20. Malaysia cannot continue depending on revenue from its depleting petroleum reserves and must find sustainable ways of funding development (Deborah Loh, 2009) .
  21. 21. Other than that, (Abood Mohamad Salmeen Alebel, 2007) considering before the system is introduced, GST needs advance preparation, enough investment in tax administration because the management of the GST must have efficient computerization system for the development of the GST system in Malaysia.
  22. 22. So, the government should carefully choose the most suitable tax rates in implementing GST, so that the tax will not burden the poor peoples. (Abood Mohamad Salmeen Alebel, 2007)</li></li></ul><li>Methodology<br />Secondary Data :<br /><ul><li>Journals from internet
  23. 23. Website research
  24. 24. Data/statistics from Government Website
  25. 25. Newspapers & articles
  26. 26. Research paper
  27. 27. Books </li></li></ul><li> How Sales Tax Implemented?<br />Manufacturer<br />Wholesaler<br />Retailer<br />Consumer<br />The tax only collected at manufacturing stage<br />
  28. 28. How GST implemented? (Standard Rate)<br />Manufacturer<br />Wholesaler<br />Retailer<br />Consumer<br />GST collected based on value added in every stage of supply.<br />
  29. 29. 10<br />Countries that implemented GST/VAT<br />YEAR COUNTRY TOTAL<br />146 Countries<br />
  30. 30. Is GST can help increase government’s revenue?<br />GST<br />Objective 1<br />Is this tax collection is efficient compare with sales tax in collecting revenue?<br />How GST can increase government’s revenue?<br />
  31. 31. Source : Economic Planning Unit, Ministry of Finance, Bank Negara Malaysia, news reports<br />*Projections following fiscal stimulus plan <br />
  32. 32. FINDINGS…<br />Many countries implement GST/VAT in lower rate at 5% to 24% as shown in table below:-<br />
  33. 33. Findings- Revenue (Canada)<br />From the implementation of GST in 1992 to 2005, the growth of GST paid outpaced income growth, with GST paid increased 120%, versus income growth of nearly 61%.<br />Canadians paid 4.4% of their disposable income in GST in 2005 compared with 3.2% in 1992.<br />Government revenue from this tax has climbed steadily, from $15.5 billion in 1991/1992 to $34 billion in 2004/2005.<br />The value added tax contributed from 12% to 30% of revnue in most countries, representing about 5-10% of GNP.<br />
  34. 34. Higher tax revenue<br /><ul><li>Widen tax revenue by implement GST.
  35. 35. More efficient because the tax collected at each stage.
  36. 36. Increase tax revenue for funding many development projects and social welfare.
  37. 37. Reduce the dependent on direct taxes on income and contributions from oil-related sources .(depleting natural resources, and their prices are volatile)</li></ul> So, GST is a good source to generate a stable flow of revenue into the Government’s coffers even during economic downturns. In real term government revenue does not change.<br />Analysis <br />result<br />
  38. 38. “who really pays the GST?” who really bears the burden of the tax in the sense of having their disposable income reduced..<br />Implementation of GST will burden poor people..<br />Objective 2<br />Is GST really help them?<br />
  39. 39. FINDINGS<br />Inevitably, the people will have to suffer in the initial stage and thus, the government must ensure that the GST will not burden the low and middle income groups, affect consumption and the economy, as well as lead to inflation.<br />Najib said that once the GST is imposed, the rate will be lower compared to the current 5% to 10% of sales and service tax. According to Singapore’s situation, its GST rate in 1994 was only 3% and it was then gradually increased to 5% and the current 7%. Meanwhile, some European countries impose over 20% of GST but they are developed high-income countries and we should not compare Malaysia with them.<br />Therefore, the GST rate should not be more than 3% in the initial stage to avoid affecting consumer moods and cause it more difficult for the economy to get rid of recession. Every year when it comes to year end, civil servants will spend much after receiving bonuses and special cash assistance. If the GST rate is higher than 3%, it will certainly affect the sales of businesses.<br />Basically, the government may impose tax on all consumer goods and services but impose the GST only on luxury goods, including jewellery, yachts, golf and equipment, and luxury watches. As many people are low and middle income earners, the government should not impose the GST on necessities, including government-subsidised sugar, flour and petrol.<br />Cars should also be exempted as the government has already imposed 100% of car import duty and high internal tax.<br />If the government impose the GST on necessities, it will further burden the poor. It will also affect Government’s efforts in defending its regime.<br />SOURCE: MAIDOALI.WORDPRESS.COM<br />
  40. 40. Certain exemptions from GST, especially on essential goods such <br /> as paddy, vegetables, basic food (rice, sugar, flour, cooking oil), <br /> fish, meat and chicken, to ensure it will not burden the consumer, <br /> especially the lower income group.<br />By imposed the GST, the poor will become poor and the rich will become richer.(Widen the gap) <br />Reduction of income taxes to put more money in the pockets of households and to boost their purchasing power. (Higher income people)<br />It is because, the rich afford to buy whatever goods they want and don’t have to worried the price of the goods and its will increase their standard of living. <br />But for the poor, since the price of goods increase, it will decrease their standard of living. <br />So, in real term implementation of GST even worsen the situation & government cannot achieve their plan to eradicate poorty among the citizens.<br />In conclusive, government’s revenue does not increase because they have to fund for the poor people in term of development & social welfare. <br />Analysis Result<br />
  41. 41. Will affect government’s revenue..<br />GST may lead to inflation?<br />Objective 3<br />Welfare of citizens<br />
  42. 42. FINDINGS<br />A survey of the price effect of introducing Value Added Tax in 35 countries by IMF has proven that:<br />In 22 cases, no major impact on the consumer price index(CPI) could be identified. That is 63% of the the countries that introduce VAT can be said to have had little or no effect on the CPI.<br />In a further 8 cases 23% of the total, the introduction of the VAT is associated with highly defined once and for all shift in the CPI.<br />Only in 6 countries, the VAT could have contributed to acceleration in the rate of inflation, although this was associated in each case with expansionary wage and credit policies.<br />The country has been facing inflation problems after a number of increases in petrol prices in 2007 and 2008. Even after the petrol prices had been lowered later, good prices, especially food prices, remains high.<br />In Malaysia the ratio is reversed. As only three million of the working population pay income tax, the remaining would not benefit from any reduction in direct income tax but would face GST in most of their everyday purchases.<br />
  43. 43. Inflation could happened because of multiple stage<br /> tax collection-Manufacturer, Producer, Retailer & <br /> Consumer paid the tax.<br />So, they tend to increase the price because the production cost increase.<br />Consumer will be affected & they have to pay more. <br />Price of certain goods will increase due to the implementation of GST.(example, luxury goods)<br />In the long run both reductions in personal income tax and increases in social security rates could sufficiently attenuate the average price rises among broad groups of households.<br />Since some businesses may not understand the tax and treat the upfront tax as their costs and thus a reason to increase prices. Some may indulge in profiteering, taking advantage of the imposition of GST to increase prices.<br />In conclusive, the price of goods and services will increase and there is no real affect on government revenue due to the implementation of GST .<br />Analysis Result<br />
  44. 44. POLICY IMPLEMENTATION<br />Currently, only the GST Bill is available. Detail of regulations and orders will be released only after the GST bill is enacted.<br />Essential items like rice and domestic public transport will not be subjected to GST-Burden falls more on those who can afford and the poor will not be burdened.<br />GST system to be introduced by the government is at four per cent to replace the sales and service tax at between five and 10 per cent at present, to increase the effectiveness of the country's revenue collection.<br />Petty Business liked Hawker who does not have RM500,000 turn over yearly are not require to pay GST.<br />Shopping Guide Listing over 300 items affected by GST will be published.<br />
  45. 45. RECOMMENDATION<br />Government have to organize a committee to evaluate the impact of implementation of GST.<br />Joint operation between consumer association and non-governmental organization to ensure worldwide pricing monitoring.<br />Enlist the cooperation of big retailer like hypermarket for benchmark the price of goods.<br />
  46. 46. CONCLUSION<br /> Introduction of GST in Malaysia needs to be well-planned and requires a sufficient long period to familiarize the public with its workings. GST needs advance preparation, enough investment in tax administration because the management of the GST must have efficient computerization system. “GST is needed not only to raise more revenue for the Government, but also to diversify its sources of income.” <br />
  47. 47. Reference <br />1. Amin. (2009, December 10).<br /> (accessed on 22 January 2010)<br />2. Abood Mohamad Salmeen Alebel. (2007).<br /> Goods and services tax problems and effects of implementation. University Utara <br /> Malaysia.<br />3. Choong, Kwai Fatt. (2007)<br />Malaysian master tax guide  24th ed. Singapore : CCH Asia Limited.<br /> <br />4. Datuk Seri Ahmad Husni Hanadzah. (2009, August 19).<br /> Government to decide on GST. Publication : Business Monitor Online<br />5. malaysia <br />the/zldh5amdpvqb/49 GST Implementation in Malaysia - The Argument (accessed on 22 January <br /> 2010)<br />6.<br /> (accessed on 23 January 2010)<br />7. Veerinderjeet Singh. (2005, February 15).<br /> Malaysian Taxation : Administration and Technical Aspects. Pearson Malaysia.<br />8. Yeo, E. P. (2009, October 14).<br /> Why Malaysia needs goods and services tax. The Star Online Business. (accessed on 23 January <br /> 2010)<br />
  48. 48. Thank You….<br />