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Goods and Services Tax (GST) Advantages and Disadvantages

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Published: Tue, 23 Jan 2018

Executive summary

On whether the goods and services tax uncertainty (GST) will be implemented in Malaysia and was eventually suppressed in 2013 October 25, the consumption tax in the 2014 budget will be announced in Malaysia’s first launched from 2015 April 1, 6%. It will replace the current sales and service tax. Consumption tax, also known as the value added tax (VAT), is a multi-phase of consumption tax. It is a broad-based consumption tax that covers all areas of the economy. All local production of goods and services imports will be taxed. Exceptions to this form of taxation are listed as zero for a specific commodity and service rated power supply, and dispense with the supply.

Introduction of goods and services tax (GST), the first is the 2005 budget, to replace the existing sales and service tax structure in Malaysia announced. This new tax reform is expected to be implemented in January 2007, but the government has announced that in February 22, 2006, the implementation will be postponed to a later date. In 2010, the government is currently completing the final phase of the implementation of the consumption tax, in particular, to identify the impact of goods and services tax on society. Is the implementation of the consumption tax will witness, not only in the manufacturing industry and service industry will be affected, but also in other areas, such as education, health, transportation, financial services, agriculture, mining, oil, land, real estate and construction industry, telecommunications, electricity and water industry. In addition, the consumption tax will also be levied on the export service / international service, government, charity, clubs, associations and trade unions. After the introduction of the first consumer tax, there is a conflict of opinion. However, the consumption tax will also provide more income, and strengthen our economic future. According to Malaysian research of economic research professor Datuk Mohamaarif Abdul Karim, who is has been the strongest supporters of the consumption tax in Malaysia implementation of, former executive director believes that the consumption tax is not only a need to raise more revenue for the government, but also to disperse source of income.This will require the issuance of business between the preparation and consumption tax will become a heavy burden on the general public’s view. It’s time is too long to discuss and review the benefits of new tax implementation and the most important issue is to businesses and the public, they prefer a win-win situation. Datuk Jacob George, Subang and Shah Alam,

Contents

1.0 Introduction

1.1 Research Background

1.1.1 Basic Concept of GST

1.1.2 Types and rates of GST

2.0 Consequences of GST

2.1 Expected Aggregate Consumption and Economic growth of Malaysia

3.0 Conclusion

4.0 Introduction

4.1 Why GST?

5.0 Conclusion

1.0 Introduction

This chapter mainly discusses the research background, problem statement, research objectives, research questions and the significance of the research.

1.1 Research Background

On whether the goods and services tax uncertainty (GST) will be implemented in Malaysia and was eventually suppressed in 2013 October 25, the consumption tax in the 2014 budget will be announced in Malaysia’s first launched from 2015 April 1, 6%. It will replace the current sales and service tax. Consumption tax, also known as the value added tax (VAT), is a multi-phase of consumption tax. It is a broad-based consumption tax that covers all areas of the economy. All local production of goods and services imports will be taxed. Exceptions to this form of taxation are listed as zero for a specific commodity and service rated power supply, and dispense with the supply.

1.1.1 Basic Concept of GST

Consumption tax is the consumption of goods and services received at each stage of the supply chain. Although the consumption tax levied from the supplier until the supply chain of the retail stage, not the formation of a portion of the production cost of the GST payment business input can be required to protect the back of the. Therefore, there is a certain number of products through the supply chain is irrelevant, because in the early stages of payment of business input tax can always be canceled by the merchant in the supply chain.

1.1.2 Types and rates of GST

Three categories of consumption tax will be used in Malaysia from 2015 to April 1st, the main difference between the rate and the method to deal with each tax. First of all, the standard level of supplies products and services, is charged with the standard rate. Business to charge a consumption tax, and pay to the government. They can submit an expense account provided by the credit to their tax input than the output of the tax. Second, the zero rate of supplies they bear a zero taxable goods and services. Enterprises can apply for income tax credit, they bring these supplies, it will be levied on the zero tax rate. Third, the exemption of supplies of non-taxable goods are eligible for tax deduction, which means they will not charge any taxes. Of course, the enterprise can’t claim the input tax credit, when they put these materials. In addition, they are not eligible to receive the output tax for consumers

2.0 Consequences of GST

GST is a broad-based tax. Therefore, it is generally considered a tax rebate. Now, return to the true meaning? In brief, a tax rebate is a burden to the poor, because it requires a relatively large proportion of the lower income. Most of the time, the foundation of a wide range of tax revenue is a serious concern to the policy makers. However, in spite of this, GST has been introduced in 160 countries in the world. These 160 countries, not all of them have experienced the consumption tax of the tired. Some developing countries, such as Vietnam, Ethiopia, and Pakistan, are facing a gradual GST, in no small part because these countries adopt the basic essentials, as well as the exemption of zero tax rate. As mentioned earlier, there is a concept of the GST is decreasing First impressions are strongest. This argument, however, does not take into account the fact that the basic essentials are not taxed in developing countries. When the element is taken into account, the value added tax can be naturally progressive

Another problem with the idea of a decision maker and the public is that the consumption tax will be inflation. There have been important debates and literature on this issue. For example, Saeed A. Bashur (2008) emphasize the introduction of business and services tax does not necessarily lead to inflation. He explained that this is because the definition of inflation is repeatedly rising, the average price over time, does not mean onceand for all to raise prices. Mukhopadhyay Sukumar (2005) said the GST could not, itself cause the rate to continue to increase the price level. But, nonetheless, Marty Viren (2008) found that over half of the tax increase (GST in this case) transferred to the consumer price. In our in-depth study of this issue, we will look at the implementation of the GST/ value added tax and its relationship with the changes in the choice of the year before and after the annual inflation rate? For this purpose, we expanded Table 1.1 to include inflation rates in the respective countries.

2.1 Expected Aggregate Consumption and Economic growth of Malaysia

The implementation of the VAT tends to stimulate public interest, sometimes becoming an important factor in the election. Many people believe that VAT would adversely affect the total consumption, and would undermine economic growth. In addition, the lower VAT rate is sometimes in a recession by stimulating economic growth, strengthening the total consumption of the argument. Miki (2011) told reporters, declining economic expansion, although overall consumption and consumption tax implemented, also increased consumption and overall economic growth in the consumption tax increase before. This will offset the negative impact after filling. Other economists say the impact of the VAT rate is only temporary, so we should not be afraid of it.

Logically, if there is a declared government will implement VAT, certainly people will buy that can be raised before the VAT rate of inventory items. Subsequently, after the implementation of VAT, the total consumption will fall, because people will use them before the stock to replace the VAT buy new items to purchase. In this case, economic growth will decline. After this, the total consumption will gradually grow to their stock ran out, the need to purchase new items. Therefore, the impact of the VAT change is easy to understand the theory, but it is difficult to grasp the importance of this effect in practice. Needless to say, the total consumption and economic growth not only changes in the VAT rate to determine. Hamburg (1954) and Barro (1991) shows that the total consumption by income, wealth, interest rates, the age distribution of the population to determine.

3.0 Conclusion

What constitutes an ugly truth? The traditional definition of an ugly truth is “a reality is a painful acceptance, but because it is called the true, it is necessary to accept it.””. So what constitutes a beautiful lie? The traditional definition of a beautiful lie is “what people really want that is true, but people know it is not”. From the government’s point of view, the government has been trying to persuade the public to replace the sales and service tax with GST will not lead to price increases, even though they know that this may not be the case. This will create an ex post behavior that people believe that the price of goods and services will not increase, causing inflation expectations to disappear. If there is little or no increase in the consumption tax, it will be a beautiful lie.

All in all, GST is the ugly truth in Malaysia or a beautiful lie? Our results refer to forward. GST in Malaysia is an ugly truth. Let us emphasize two points again. First, the government has always claimed that 6% of the consumption tax will replace 16% of sales and service tax. On paper, it sounds like a good. People will think that there is a tax cut of 10%. However, the fact is that there will be an increase of 2% from 4% to 6%. Secondly, the Chinese government has always insisted that the price of goods and services will not increase. People will still spend and the economy will grow to predict. However, our results show that prices will increase in the short and long term, the decline of precipitation in domestic consumption. Economic growth will be blocked.

4.0 Introduction

Introduction of goods and services tax (GST), the first is the 2005 budget, to replace the existing sales and service tax structure in Malaysia announced. This new tax reform is expected to be implemented in January 2007, but the government has announced that in February 22, 2006, the implementation will be postponed to a later date. In 2010, the government is currently completing the final phase of the implementation of the consumption tax, in particular, to identify the impact of goods and services tax on society. Is the implementation of the consumption tax will witness, not only in the manufacturing industry and service industry will be affected, but also in other areas, such as education, health, transportation, financial services, agriculture, mining, oil, land, real estate and construction industry, telecommunications, electricity and water industry. In addition, the consumption tax will also be levied on the export service / international service, government, charity, clubs, associations and trade unions. After the introduction of the first consumer tax, there is a conflict of opinion. However, the consumption tax will also provide more income, and strengthen our economic future. According to Malaysian research of economic research professor Datuk Mohamaarif Abdul Karim, who is has been the strongest supporters of the consumption tax in Malaysia implementation of, former executive director believes that the consumption tax is not only a need to raise more revenue for the government, but also to disperse source of income.This will require the issuance of business between the preparation and consumption tax will become a heavy burden on the general public’s view. It’s time is too long to discuss and review the benefits of new tax implementation and the most important issue is to businesses and the public, they prefer a win-win situation. Datuk Jacob George, Subang and Shah Alam, President of the Consumers Association for people to accept any new form of tax, the government must make significant efforts, to education and to the consumer explain clearly on the new tax and how it will benefit them in the long term run.It must to the confidence of the public, they pay to the government the surcharge is well managed, in line with the best interests of their. In addition, the main difficulty of the changes to do not have any preparation. According to the tax expert Dr. Arjunan, there’s always a change of resistance, or even better. The main challenge is to solve the mentality of the taxpayer. They need to be educated in this new indirect tax method. In addition, the consumption tax law is one of the most supreme opinion of the law of consumption tax law. In addition, the importance of goods and services tax is due to it is not only related to the issue of tax reasons, but it is a comprehensive problem, it cannot be taken for granted.

4.1 Why GST?

In the current environment, there are two acts of its management is called sales tax in 1972 (Act 64) and Services Tax in 1975 (Act 151) of goods and services. These two taxes are handled by the Royal Malaysian Customs (Customs). Sales tax on consumers who consume taxable goods, then collected and accountable to the Customs by commercial enterprises. Service tax is imposed on the other hand, consumers who consume food or service, such as in hotels, health center premises or engaged in professional services, such as auditing firms and the services of the second program service tax regulations in 1975 listed Two basic consumer sales and service tax is a single stage tax levied at the consumption stage. It is called a single-stage tax due to the fact that tax is only one, or at the input or output stage. Compared to the existing sales and service tax, excise duty and value added tax (VAT) is a multi-stage tax. This is due to the tax paid in the production and sale of intermediaries at every stage. In other words the consumption tax levied at every level of the production and distribution chain until the end consumer. In the pursuit of realization of goods and services tax in Malaysia, the government has set up a tax review panel includes representatives from the public sector and the private sector. Scope tax review panel include developing concept, legislation, processes and procedures of the consumption tax. As a reference group to review several countries, including New Zealand goods and services Tax 1985 Act so far, the United Kingdom VAT Act 1994, tax laws of the Republic of South Africa in 1991, the VAT tax, goods and services in 1991, the Canadian document, goods and services Tax sales tax luxury goods and services, Singapore 2000 Indonesia 1993 Act, the new system (Goods and Services Tax) Act 1999, Australia, Thailand, in 1992 VAT Act, VAT and Sales Tax in 1990 Pakistan.

In Singapore, Pheng and Loi (1994) explained that the ideal of GST is in Singapore due to the following reasons: –

  • In order to reduce reliance on direct taxes
  • To maintain a lower corporate tax rate
  • In order to reduce the dependence on personal income tax, due to the problem of population aging in Singapore

In Malaysia, the introduction of goods and services tax purposes is to reduce the country’s growing budget deficit, so it is the purpose of improving tax collection and management. Veerinderjet believes that the target is a goods and services tax is full range (i.e., covering extensive or a wide range of goods and services base), and effective implementation, in order to have a stable source of revenue. Overall, the introduction of goods and services in Malaysia is to achieve the following objectives:

  • To avoid tax cascades, multi tax and transfer pricing bias;
  • To improve tax compliance and reduce tax avoidance and tax evasion;
  • In order to realize the self supervision, reduce bureaucratic unnecessary and overelaborate formalities to reduce administrative costs;
  • To further reduce the operating costs of enterprises by providing tax credits for business,
  • In order to improve the competitiveness of Malaysia and improve efficiency

5.0 Conclusion

Today, GST is an important issue in Malaysia, but it is believed that this will raise taxes on consumer income. Therefore, in order to ensure the smooth implementation of the commodity and service tax, all parties must be fully prepared, and give it full commitment. The public should not just rely on the government only to ensure its success, but the responsibility of the IE browser is particularly for the enterprise. Perhaps, by continuously reducing corporate taxes from 28% to 26% in 2008 has been mentioned in the 2007 budget, it will give the people a comfortable room, the company to submit to the consumer tax. The most important is that the consumption tax in the early course of the implementation of any weak link, should be improved and re designed to create a “win-win situation” involved in all the parties. As a conclusion, GST will enable the public to strengthen Malaysia’s economy and improve the quality of life


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