Impacts of GST in Malaysia

Introduction

The aim of each country in total development do not rests by simply gaining additional economic strengths. Indeed, they must catch the growth of the other developed countries. They must increase the progress of the economic activities and provide essential policies and governmental regulations that can be implemented and applied in both local and national regions. Furthermore the country should target a balanced development and global competitiveness.

Background and Problem Statement

The Malaysian government proposed the GST bill and released in December of 2009. Definitely, this will create an impact on the businesses and people. GST or the Goods & Services Tax was introduces bearing the 4% tax that will take effect on 2011. It is important that the businesses understands the GST bill in order to provide the expected benefit and create a feedback on the government. Furthermore, both people and businesses are entitled to assess the risk and various impacts that might produce by the GST (Chia, 2010). However, what are the expected recognizable impacts of GST among the consumers, government servants, and ordinary people/workers?

Research Aim and Objectives

The main aim of the study is to gain the overview of the Malaysia GST Bill. In order to achieve this aim, there are three objectives that should be considered. First is to investigate the critical factors of GST. Second is to identify the transitional provisions or reforms that implemented over the GST. And third, is to determine the various administrative burdens or constituted problems pertaining to the implementation of GST.

Literature Review

Malaysian economy experienced the growth on their GDP for 2005 by pointing the 5% increase. In return, the budget deficit dropped in 3.8% which helped the progression of the projects. However, the government is still looking for appropriate intervention to stabilize the prices on oil and other fuel products. In the year of 2006, the government proposed that there should be better flexibility in sustaining the growth momentum thus, in beginning of 2007, a comprehensive value-added tax, known as the "goods and services tax", or GST, will be introduced to improve tax collection through indirect taxation and to ensure a more stable source of revenue (Nathan, 2006).

Among measures announced during 2004 was that the current sales and service tax would be replaced with a single consumption tax or the GST, in line with many other ASEAN countries. This introduction of new tax attacks the deficiencies in the policies and regulations in the country. For example, smuggling was targeted because of the huge loss of about 30 per cent of income from cigarette duties. Security inking and tax stamps on cigarettes as well as a customs crackdown which began in June, yielded a significant drop in smuggling and higher duty collection of RM800 million (US$210.5) for just the period from June to September, compared with RM600 (US$157.9) million collected for the first three months of the year. However, industry sources say that there is still much more to be done (Martinez, 2005).

It is expected that a number potential benefits can be gained through the implementation of GST in the country. Firstly, the knowledge regarding the GST can provide the opportunities for the businesses and consumers in their investment and consumption decisions. The goods and services, in addition, would stimulate the domestic consumption as consumers seek to minimize any impact that GST that may have on prices when the tax becomes live. There is a significant effect on the acceleration of spending by consumers and business spending to prepare for the tax would also potentially increase tax revenue for the government through the increase in domestic consumption and aid in the reduction of the budget deficit. The GST can have a positive impact on exports and the ability of the government to make timely refunds to export-oriented businesses. Therefore, the acceptance of the new tax by the public would also be a key factor for the government and answer the basic necessities such as food issues, water, electricity and water, and health (Choon, 2009).

Methodology

The applied method in the study is the use of secondary information that can be obtained from the governmental reports such as the Finance and Taxation Department. In addition, the business reports and other studies can be also use as a reference of the study. Through the provided information, the study can analyze the various effects or impacts of GST in Malaysia.

References:

Chia, R., (2010) The impact and Overview of GST in Malaysia [Online] Available at: http://www.cimaglobal.com/Documents/Our%20locations%20docs/Malaysia/Events/The%20impact%20and%20overview%20of%20GST%20in%20M%27sia.pdf [Accessed 06 Aug 2010].

Choon, W.H., (2009) It's Time to Introduce a GST, The Edge [Online] Available at: http://www.pwc.com/my/en/issues/introduce-gst.jhtml [Accessed 06 Aug 2010].

Martinez, P.A., (2005) Malaysia in 2004: Abdullah Badawi Defines His Leadership, Southeast Asian Affairs, 191

Nathan, K.S., (2006) Malaysia: the Challenge of Money Politics and Religious Activism, Southeast Asian Affairs, 151