Tax is implemented to cover expenses for the needs of the government, the people and the country.
At present, the taxation structure of the state sets taxable groups comprised of corporations and individuals, individuals, exporters and importers, manufacturers and gamblers.
Federal Government revenue was also contributed by direct tax revenue, such as Corporate Tax, Individual Income and Profit and Stamp Duty, administered and collected by the Inland Revenue Board.
While the indirect taxes under the purview of the Royal Malaysian Customs Department include Customs and Excise Duties, Sales and Service Tax (SST), Goods and Services Tax (GST) and Exceptional Levy.
SST is not a new tax system in Malaysia, but it has been implemented since the 1970s before being replaced by GST effective April 1, 2015 to address the weaknesses inherent in the previous system.
It includes overlapping or duplicate tax effects, price and value transfers, discouraging vertical integration, bureaucratic red tape and classification issues. Nevertheless, the country's taxation regime will again undergo changes with the abolition of the GST to SST, effective September 1.
Senior Lecturer of Faculty of Economics and Management of Universiti Putra Malaysia, Dr. Mohd. Yusof Saari pointed out, following the announcement on the re-execution of SST, there was confusion and misinterpretation on GST requiring clarification.
"Technically, GST tax is cheaper than SST as it applies to its added value or simple language, profit margins of each supply chain.
"Although it is imposed on each supply chain, it is smaller because it is imposed on value-added generation, while the SST is a tax imposed on the sale price of finished goods," he said.
He added that when production costs were lower, the price of goods tended to decline.
"Practically, price drops do not happen after three years of implementation of the GST," he said.
Mohd. Yusof explained, studies show there are four factors why prices continue to rise after the implementation of the GST.
"Firstly, the firm's compliance rate to the GST system is still low, not even up to 50 percent of businesses registering under the system while the assumptions used when the GST is implemented is 100 percent compliance.
"Secondly, weak enforcement from the authorities led to price manipulation in the market and the third, understanding the GST is still low by firms, consumers and authorities," he said.
The fourth factor, he said, the non-GST price pressure factors such as the weakening ringgit's currency rate led to the import of expensive goods, the minimum wage that increased labor costs and monopoly market structures.
"The first to third factor is no longer relevant when the GST is abolished but the fourth factor remains relevant.
"The impact on prices due to the abolition of the GST may not be impressive or just minimal as producers are still burdened by the rising cost of production due to the cost of imports of raw materials and labor.
"In fact, the people can see that no tax is imposed, either GST or SST, at present, the prices of goods in the market do not show a downward trend," he said.
Therefore, Mohd. Yusof emphasized that assuming GST as a source of price hikes was inaccurate.- KOSMO 21 July 2018