Article Review on GST in Malaysia The comparison with the other countries

1. 1.0 Introduction
In many developed countries, the application of Goods and Services Tax (GST) or
known as Value Added Tax (VAT) in some countries has been implemented in so many
years especially in Europe countries. The beginning of GST is made to replace the
government service tax and sales and service tax in enhancing and standardized the collection
of tax in a country.
Before the application of GST in Malaysia, the existence tax that we used in
collecting the revenue is one of that is sales and service tax which introduced in 1972 and
1975. The rate for the sales tax is 5% - 10% and for the service tax is 6% for specific credit
card which is counted as separated. It is means some of the goods and product does have the
taxes such as foods, drinks, furniture and etc which has non-fixed tax rate compared to the
GST. Furthermore, the sellers or providers can implies the tax as they like during the sales
and services tax.
Meanwhile the implementation of GST in Malaysia has been effectively started in
April 2015 during the announcement of Budget 2014 which has been announced by the
government at the rate of 6% and this tax will be replaced the sales and service tax. The
objectives of the implementation are to improve the tax collection in Malaysia which is
introduced more systematic tax collection in the country compared to previous one. Basically
the GST is a wide and based on the value-added concept, and the tax is more to broad based
tax consumption. In other hand, through GST, the tax burden bear by the consumers during
the purchase. The company or firm does not pay a tax since the tax borne by the consumers
and the firm after they registered they can claim from the government the input tax credit in
compensate against the GST levied towards the goods and services which supplied to the
customers.
As the GST applied the tax burden towards the customers, the business or firm does
not to borne the tax and the company can claim and because of that, it is one of the reason to
attract the sellers in registering the GST through Customs Department of Malaysia. Besides,
the government can reduce the cases of tax avoidance among the business or company in the
country. The outcome from the GST through the collection will help the government in
increased the allocation in term of development expenditures such as schools, hospitals,

2. public transport and many more. What is the concern is the distribution of national income
towards the citizens.
2.0 History of GST
Since the previous tax applied which is known as sales and services tax benefits the
producers and firms not the government, the implementation of the GST started effectively in
April 2015 has arise some issues among the citizens either the new introduction of tax
imposed to the citizens are affordable or it is a burden to the peoples.
The argument regarding the new tax is popular among the citizens at that time
including the opposition parties which some of them agree and some not involving the
professionals, academics and the peoples of course on how GST influence the price to
decrease or increase. For the information GST was been introduced in 1950’s in France and
has been adopted in various more than 120 countries including the European countries. The
application of GST involving a multi stages compared to the sales and service tax which
related to the one stage only. According to the Rozlan (2015), in 1983, the Malaysian
government has sends a research team to South Korea to study the potential of GST in
implementing the sustainable, broad based consumption tax system. The next step taken by
the government, on 21st October 1988, the Minister of Finance during that time Tun Daim
Zainuddin told the citizens that the government considering implementing the GST.
The announcement of GST in the early phase has been announced by the Dato’ Seri
Anwar Ibrahim, the Minister of Finance on 30 October 1992, however later on it was been
postponed. For the next few years, the government once more try to bring back the GST in
the country through the budget announcement on 10th September 2004, made by the Tun
Abdullah Haji Badawi, Prime Minister during that time announces for the 2005 Malaysian
budget which would become effectively by 1 January 2007. Later on it was deferred in 2006
to give a time to the business and company to adapt the changes and preparing the documents
and information to their staffs in handling the GST and the government agency especially
Customs department needs to preparing themselves in managing the transaction and the
documentation involving many company that need to be registered and in claiming the tax.
Meanwhile around the world, as at 2013, there are 160 countries that already changes
to the GST, in ASEAN countries involved 7 countries, ASIA 19, Europe 53, Oceania 7,

3. Africa 44, South America 11, Caribbean, Central and North America 19. In comparing the
with the ASEAN countries the highest rate of tax rate is Philippines which is 12% and
Malaysia has the lowest tax rate 6%.
Country Year of
Implementation
Initial Rate % Current Rate
Indonesia 1984 10 10
Thailand 1992 7 7
Singapore 1994 3 7
Filipina 1998 10 12
Cambodia 1999 10 10
Vietnam 1999 10 10
Laos 2009 10 10
Malaysia 2015 6 6
Figure 1.0: The tax rate among the ASEAN Countries.
The table above shows that the tax rate among the ASEAN Countries which stated
that the Philippines increased their tax rate to the 12% compared in early imposed of the GST
as 10%. The other neighbourhood countries like Indonesia, Cambodia, Vietnam and Laos
records the same tax rate. In the other hand, the Singapore has increased their rate from 3% to
the 7% and Thailand still remains their tax rate.
Based on the blueprint of GST, there are some products that considered as zero rated,
such as agriculture product in supporting the local farmers, livestock supplies, fish,
crab,oyster , water usage to domestic users, rice, flour, salt , sugar, cooking oil, poultry and
eggs , exported goods and services and first 300 units of electricity. This exemption is made
by the government in reduce the cost for the citizens in their daily life to keep survive. It is
one of the approaches taken by the government in helping the peoples to improve their
standard of living and increase their economy. Even though it is not much, but it is does help
the poor people especially in rural areas and urban areas.

4. 3.0 Analysis of GST in Malaysia
3.1.0 Impact towards low income households.
The proposed GST that implemented in Malaysia is a regressive tax (Kim Hwa & Qi,
2013). It is means it will impose a small burden towards who are richer. Furthermore, it is
expected that the lower income earners pay more GST as compared to the higher income
earner. It is possible for the government in reducing the tax for the low income people.
The GST implementation may raise issues towards the social mobility for households
(Zhou et al., 2013). Practically, low- income households spend more on essential items like
the foods and etc. In the globalization era, every transaction required a technology, without
proper or sufficient money and saving it would cause people to left behind. Moreover
insufficient savings, the low income household may facing a huge difficulties in managing
their daily life especially involving the education and information technology. In the other
side, the implementation of GST will benefited the wealthier people because they have a
saving and spend less compared to the lower income groups (Zhou et al., 2013). A study
conducted by Palil & Ibrahim (2011), stated that the low- income group are actually concern
and worried about the GST will increase the prices of goods in future and of course it would
increase the living cost. However the existence of Zakat does help the low income groups in
facing the living cost and there are some aids that given by the government in helping them to
live in a good environment.
3.1.1 The outcome of GST in Malaysia
In implies of the GST in any countries it is not easy as we seen, requiring a lot of
discipline and determination among the government, businesses and the citizens and most
difficult reforms a government undertakes.
Furthermore it is related to the collection of money, claims from the businesses and
etc. The GST itself really requires high skills and determines the desire of policymakers and
politicians (Alex, 2016). In comparing with a country like New Zealand which were been
applied the GST since 1986. The country has going through updates time to time and it is
accepted as the cornerstones of the economic growth. Besides, the implementation of GST in
Australia has struggled to modernise their tax system in boost up the economic growth in
gaining more revenue. Meanwhile in Malaysia, we can say the implementation of GST in our

5. country can be counted as a success due to the efforts by the government in promoting GST
and enhancing the tax collection.
Even though there are some flaws which related to the velocity at which many
businesses are not readily preparing for GST and the short period that given by the Royal
Malaysian Customs had for implementation. Nevertheless, with the high encouragement and
supports from the Customs, the businesses are success in adapting to the new rules and
regulations and processes. Moreover, the collection from GST which is well ahead of
forecasts. The revenue collection for 2015 is RM 50 billion since the introduction of GST
compared to the RM 37 billion collected in 2014 collected in 2014 without GST. The
government gains more revenue with the existence of GST and through that more
development expenditures can be allocated and many facilities can be developed in
improving the standard of living among citizens especially for the low-income group.
In addition, the economy has expanded by 5 % for the last year and was slightly ahead
comparing to the forecasted growth rate of 4.9 % (Alex, 2016). In term of businesses aspects,
some of them view the GST as a new dimension and change and transition can be a challenge
to the company or organisation. Besides, based on the recent survey covers in Malaysia and
across Asia Pacific shows the business confidence in Malaysia is strong. With the 70 % of
respondents said they will grow more and increase their sales and productivity. Due to the
results it is shows a 10 percentage of increase for last year surveys.
As time passes by, the system of tax collection will be more systematic, the linking
between government agencies and businesses become more reliable and more participation
among company and firms in registering the GST for their own benefits. Higher revenue
collection made by the government more spending can be allocated towards the citizens. As
development and facilities are well equipped in the country it would contribute to the
tremendous economic growth for the country because of the people are in stable economic
condition and at the same time generate more income.

6. 4.0 Conclusion
In a nutshell, in the early beginning of the introduction of GST in Malaysia, there are
some arguments either the implementation of the GST will bring a success towards the nation
or just a some bad ideas that will contribute negative impact to the country and specifically
towards the economic performance and growth.
The involvement of the businesses and firms and supports from the Royal Customs of
Malaysia in making sure the implementation of GST has aligned with the objectives and
targets from the governments. Without the supports from the businesses and commitment
from the customs and other government agencies in promoting the benefits of GST in long
term it would lead to the failure. Even though there are some objection from several parties
and society, the GST implementation has been success being implemented in our country.
After the tax collections become more effective and efficient it would be as a one of the
major revenue for the government.
In term of acceptance by the public, time by time the citizens can accepted the
implementation of GST even though in the early phase of implementation some of them have
opposed the implementation of the tax. Later on, with the right promotion and road tour by
minister and ministry in giving a clear pictures to the people, they can accepts the
implementation and supports the new tax in helping to generate more income for the
government. With the right promotion and information, it would increase the support from
the citizens towards the implementation. The government need to come out with the fresh
idea in giving a clear pictures to the peoples such as a graphic information to the youths as a
new generation that are also will contribute to the national income in future. Besides, the
information to the rural areas are also need to be distributed so that they will get a clear
understanding regarding what the GST is all about.
Last but not least, the government should convince that GST will not increase the
good prices significantly. In this situation the government needs to wisely brief to the public
in term of pricing, how the price is increase and even though the prices need to be increased
the government should come out with the good ideas and alternatives in reducing the cost or
at least reduce the burden for the lower and middle income earners like reduce the income tax
rate.