The Goods and Services Tax (GST) is a value-added tax in Malaysia. GST is levied on most transactions in the production process but is refunded with exception of Blocked Input Tax, to all parties in the chain of production other than the final consumer.
The existing standard rate for GST effective from 1 April 2015 is 6%. Many domestically consumed items such as fresh foods, water and electricity are zero-rated, while some supplies such as education and health services are GST exempted.
What is GST?
GST which is also known as the VAT or the value-added tax in many countries is a multi-stage consumption tax on goods and services.
GST is levied on the supply of goods and services at each stage of the supply chain from the supplier up to the retail stage of the distribution. Even though GST is imposed at each level of the supply chain, the tax element does not become part of the cost of the product because GST paid on the business inputs is claimable. Hence, it does not matter how many stages where a particular good and service goes through the supply chain because the input tax incurred at the previous stage is always deducted by the businesses at the next step in the supply chain.
GST is a broad-based consumption tax covering all sectors of the economy i.e all goods and services made in Malaysia including imports except specific goods and services which are categorized under zero-rated supply and exempt supply orders as determined by the Minister of Finance and published in the Gazette.
The basic fundamental of GST is its self-policing features which allow the businesses to claim their Input tax credit by way of automatic deduction in their accounting system. This eases the administrative procedures on the part of businesses and the Government. Thus, the Government’s delivery system will be further enhanced.
We need to pay taxes so that the government can finance socio-economic development; which includes providing infrastructure, education, welfare, healthcare, national security etc.
“Over the past few decades, the worldwide trend has been for the introduction of a multi-stage GST system. Today, almost 90% of the world’s populations live in countries with GST, including China, Indonesia, Thailand, Singapore and India.”
GST shall be levied and charged on the taxable supply of goods and services made in the course or furtherance of business in Malaysia by a taxable person. GST is also charged on the importation of goods and services.
A taxable supply is a supply which is standard-rated or zero-rated. Exempt and out of scope supplies are not taxable supplies. GST is to be levied and charged on the value of the supply.
GST can only be levied and charged if the business is registered under GST. A business is not liable to be registered if its annual turnover of taxable supplies does not reach the prescribed threshold. Therefore, such businesses cannot charge and collect GST on the supply of goods and services made to their customers. Nevertheless, businesses can apply to be registered voluntarily.
Almost all countries collect income tax, which is a percentage of what you earn as an individual. Another way the government gets revenue is by collecting tax from business operations, like sales tax and duties on items that are bought or sold.
We need to pay tax so that the government can operate. GST is one method of collecting taxes which works better than others.
GST is not new
The concept behind GST was invented by a French tax official in the 1950s. In some countries, it is known as VAT or Value-Added Tax. Today, more than 160 nations, including the European Union and Asian countries such as Sri Lanka, Singapore and China practice this form of taxation. Roughly 90 percent of the world’s population live in countries with VAT or GST.
Here are some of the tax rates of countries around the world who have implemented GST or VAT.