KoSong: GST: Theory vs Reality

How should we judge a government?

In Malaysia, if you don't watch television or read newspapers, you are uninformed; but if you do, you are misinformed!

"If you're not careful, the newspapers will have you hating the people who are being oppressed, and loving the people who are doing the oppressing." - Malcolm X

Never argue with stupid people, they will drag you down to their level and then beat you with experience - Mark Twain

Why we should be against censorship in a court of law: Publicity is the very soul of justice … it keeps the judge himself, while trying, under trial. - Jeremy Bentham

"Our government is like a baby's alimentary canal, with a happy appetite at one end and no

responsibility at the other. " - Ronald Reagan

Saturday, October 26, 2013

GST: Theory vs Reality

I believe consumers will bear the brunt of inflationary effects when GST takes effect on April 1, 2015.

We have experienced before, how each fuel price increase often resulted in higher prices of goods and services than expected or should be. Even with chicken prices, a minister's one-off visit to the market is not going to change the 'take it or leave it' prices charged by sellers, especially during festive seasons.

Similarly, we can expect consumers to be at the mercy of ignorant or profiteering traders and retailers.

In theory, GST at 6% is imposed only on the value added portion at each stage of the supply chain. But in practice, who is to decide whether this is strictly applied? To Customs & Excise, so long as the net amount (output tax less input tax) is properly accounted for, there is no offence. So there is no stopping a wholesaler applying 6% on 106 charged by manufacturer; and the retailer charging 6% on the 112.36 charged by the wholesaler. The so-called 'value-added' portion is subjective and is likely to be included in the profit margin of the trader.

One way to prove this is to compare the prices of retailers on March 31 and April 1, 2015. In theory, for those under SST, there should be a lowering of prices as a result of the abolished Service Tax of 10% and Sales Tax of 5%, and the imposition of a lower 6% GST. But will this happen?

GST has been touted by those in favour that it is more transparent, more accountable unlike the old SST. But for this to happen, a business entity has to be fully compliant with the use of computerised system of accounting. Again, we are assuming that all affected businesses will be registered and have in place proper accounting systems. By the way, there will be an increase in capital expenditure on computers and system as well as accounting fees. How long will it take for proper enforcement to ensure this will happen in most cases? We are often told of the lack of enforcement officers when people complained of many people flouting the law.

There will be opportunists who are unregistered but will still charge the prevailing GST to increase their profit margins, at the expense of the consumers.

As I understand it, those dealing with exempted goods and services need not register for GST. For those dealing with zero-rated goods and services, they are expected to register so that they can claim back their Input GST, thereby lowering their costs.

A housing developer has already commented that even though houses are not subject to GST, he expects his development costs to increase as a result of many building materials being subject to it. Was there a presumption that those items were not previously under SST? Or, was he expecting a free for all kind of imposition of GST regardless of the superseded SST?

Update: IT'S A LIE that GST will be cheaper than existing sales tax - Kian Ming

"The truth is that the items taxed under the Sales Tax and the Service Tax is far less than what is taxed under the GST which means that the prices of the majority of goods and services will INCREASE because of the GST even AFTER the removal of the SST.

What the BN has not told the rakyat is that many items are currently exempt under the sales tax. According to the Sales Tax (Rates of Tax No.2) 2012, the number of items which are exempt under the Sales Tax i.e. NOT TAXED runs to 250 pages.[1] In contrast, the number of items which are zero rated under the GST - NOT TAXED at any point of the supply chain – is only 21 pages long.[2]
Some of the items which are not charged under the sales tax but will be charged under the GST include many non-luxury items such as milk, coffee, tea, mineral water, canned fruit, newspapers, stationary, school bags, and boxes, just to name a few. Electricity consumption above 200kwH (any amount above RM50) will also be charged GST. The prices of these goods will definitely INCREASE after the GST because the removal of the SST has no effect on their prices."

More:
http://www.bm.malaysia-chronicle.com/index.php?option=com_k2&view=item&id=98642:gst-will-be-cheaper-than-existing-sales-tax-is-a-lie-kian-ming&Itemid=2#ixzz2iv9aiMGh