News & Articles "Time to focus on what will be cheaper with GST "
"Time to focus on what will be cheaper with GST "
25 Mar 2015
COMMENT
With the Goods and Service Tax (GST) taking effect just a week away, it’s time to remember that not everything is going to be more expensive under the new tax regime.
While there have been countless moans and complaints about how everything is getting dearer, with some traders claiming they’d have to close shop, only two sectors have come out so far to say their prices will go down.
The car industry is expecting prices to fall from next month, as has pizza delivery firm Domino’s.
The secret to their cheaper prices – a little-understood concept called “input tax”.
Why this concept is poorly understood by the Malaysian public is due to the fact that much of the taxes already imposed now – like import duties or the 10% sales tax (the latter is to be scrapped from March 31) – are “hidden” taxes.
These are “hidden” taxes as they apply at the producers’ level and not usually shown to the end consumer.
An example of such a “hidden” tax until recent times would be that imposed on airline ticket purchases – no many knew until the airport tax, fuel surcharge, etc became separately charged costs.
Another example which the Customs Department likes to illustrate during countless GST briefings it held during nationwide roadshows is the 10% sales imposed on items that go into the production of a dress.
The plain cloth itself is slapped with a 10% tax, then another 10% when it’s dyed, then again when buttons, elastic, sequins and such are added on.
What’s worse is that the taxes at each production level is on a compounded basis – meaning what starts out as 10% becomes 21% at the next level because the second tier 10% tax is imposed on the first tax!
By the time the dress reaches the consumer at shop shelves, the cumulative taxes imposed can add up to as high as about half the dress cost.
With GST, the only tax imposed is 6% on a pass-through basis – meaning that the retail cost of a dress could easily drop by almost half as there’s no longer the cumulative tax added on.
This is possible due to the “input tax” mechanism. The second producer is able to claim back the 6% GST imposed by the first as “input tax” deductions. Hence, the tax imposed does not compound and keep increasing like the earlier sales tax calculation.
Based on this explanation, which the Customs Department stands by, the cost of building houses – for example – should also go down because there will be no more compounded sales tax imposed on the cement, bricks, premix, steel rods, window panes, etc.
The developer would actually end up with construction cost savings due to the “input tax” mechanism with GST.
If a parallel is drawn with the car industry – where the same assembly principles apply – new house prices should actually go down by around 10%!
GST-Complain05
As for traders who complain they can’t continue their business operations with the GST, it’s largely due to this new tax regime casting a wide net to capture those who have avoided paying income taxes all this while.
An example would be the pasar malam trader who buys tomatoes in bulk and repackages it into small bundles of five each. This trader can claim the “input tax” for repackaging the tomatoes.
The main hitch here is the “input tax” can be claimed only if the pasar malam trader is also paying income tax on the business profits.
It’s anybody’s guess as to how many are actually declaring their business incomes for taxation – but chances are those complaining the loudest aren’t declaring enough to match what they’d claim on the “input tax” – resulting in their “losses”.
This is exactly the aim underlining the GST regime – the Internal Revenue Department wants to cast a wider net to shrink the “shadow economy”.
This aim is to ensure there will be a bigger pool of people and business entities declaring and paying income taxes, rather than just relying on people like you and I who are drawing regular monthly salaries.
Of course there will be items which will be more expensive with the GST – mainly because of no sales tax imposed on them now. Examples would be electronic and mobile devices.
But it’s also time to find out what will be cheaper with GST – with the shopping guides at the Domestic Trade and Consumer Affairs Ministry website showing clearly 490 items which will see their prices falling come April .
With the Goods and Service Tax (GST) taking effect just a week away, it’s time to remember that not everything is going to be more expensive under the new tax regime.
While there have been countless moans and complaints about how everything is getting dearer, with some traders claiming they’d have to close shop, only two sectors have come out so far to say their prices will go down.
The car industry is expecting prices to fall from next month, as has pizza delivery firm Domino’s.
The secret to their cheaper prices – a little-understood concept called “input tax”.
Why this concept is poorly understood by the Malaysian public is due to the fact that much of the taxes already imposed now – like import duties or the 10% sales tax (the latter is to be scrapped from March 31) – are “hidden” taxes.
These are “hidden” taxes as they apply at the producers’ level and not usually shown to the end consumer.
An example of such a “hidden” tax until recent times would be that imposed on airline ticket purchases – no many knew until the airport tax, fuel surcharge, etc became separately charged costs.
Another example which the Customs Department likes to illustrate during countless GST briefings it held during nationwide roadshows is the 10% sales imposed on items that go into the production of a dress.
The plain cloth itself is slapped with a 10% tax, then another 10% when it’s dyed, then again when buttons, elastic, sequins and such are added on.
What’s worse is that the taxes at each production level is on a compounded basis – meaning what starts out as 10% becomes 21% at the next level because the second tier 10% tax is imposed on the first tax!
By the time the dress reaches the consumer at shop shelves, the cumulative taxes imposed can add up to as high as about half the dress cost.
With GST, the only tax imposed is 6% on a pass-through basis – meaning that the retail cost of a dress could easily drop by almost half as there’s no longer the cumulative tax added on.
This is possible due to the “input tax” mechanism. The second producer is able to claim back the 6% GST imposed by the first as “input tax” deductions. Hence, the tax imposed does not compound and keep increasing like the earlier sales tax calculation.
Based on this explanation, which the Customs Department stands by, the cost of building houses – for example – should also go down because there will be no more compounded sales tax imposed on the cement, bricks, premix, steel rods, window panes, etc.
The developer would actually end up with construction cost savings due to the “input tax” mechanism with GST.
If a parallel is drawn with the car industry – where the same assembly principles apply – new house prices should actually go down by around 10%!
GST-Complain05
As for traders who complain they can’t continue their business operations with the GST, it’s largely due to this new tax regime casting a wide net to capture those who have avoided paying income taxes all this while.
An example would be the pasar malam trader who buys tomatoes in bulk and repackages it into small bundles of five each. This trader can claim the “input tax” for repackaging the tomatoes.
The main hitch here is the “input tax” can be claimed only if the pasar malam trader is also paying income tax on the business profits.
It’s anybody’s guess as to how many are actually declaring their business incomes for taxation – but chances are those complaining the loudest aren’t declaring enough to match what they’d claim on the “input tax” – resulting in their “losses”.
This is exactly the aim underlining the GST regime – the Internal Revenue Department wants to cast a wider net to shrink the “shadow economy”.
This aim is to ensure there will be a bigger pool of people and business entities declaring and paying income taxes, rather than just relying on people like you and I who are drawing regular monthly salaries.
Of course there will be items which will be more expensive with the GST – mainly because of no sales tax imposed on them now. Examples would be electronic and mobile devices.
But it’s also time to find out what will be cheaper with GST – with the shopping guides at the Domestic Trade and Consumer Affairs Ministry website showing clearly 490 items which will see their prices falling come April .
Source: The Rakyat Post