Question 1

The annual budget for 2014 has introduced several tax changes which concern
individual and/or sole-proprietor business and with the objectives of improving the economy
growth while minimizing the fiscal deficit of government and prosper as well as enhance the
wellbeing of nation and people.
Firstly, the government has revise and review the Real Property Gains Tax (RPGT),
the tax levied on the gains made from the difference between the disposal price and
acquisition price1 and at the same time government has increase the minimum price of
property that can be purchased by foreigners from RM500000 to RM1000000. 2
REAL PROPERTY GAINS TAX FOR 20143Tax Rates
Personal (citizen & PR) Company
Disposed within 3 years

30%

30%

Disposed in 4th year

20%

20%

Disposed in 5th year

15%

15%

Disposed after 5 years

0%

5%

REAL PROPERTY GAINS TAX FOR 20134Tax Rates

Personal (citizen, PR & non-citizen) Company
Disposed within 2 years

15%

15%

Disposed after 2 & up to 5 years

10%

10%

Disposed after 5 years

0%

0%

1 Real Property Gain Tax. Valuation and property service department

2 Ministry of Finance Malaysia. 2013. The Budget 2014.
3 Ministry of Finance Malaysia. 2013. The Budget 2014.
1

The change of RPGT from year 2013 to year 2014 is on tables above. This tax changes
will be effective on 1 January 2014. Owning a comfortable housing is on the wish list of
many citizens but recently due to several reasons the property price in Malaysia has increase
critically. One of the reasons contribute to increase in property price in Malaysia recently is
the speculation and buying property by foreigners. 5 Furthermore, developers involve in
Developer Interest Bearing Scheme (DIBS) is also one of the factors lead to property price
increase.6 Therefore, in budget 2014 the minimum price of property purchased by foreigners
has increase and in order to curb speculation of property lead to price of property increase the
RPGT has review and increase. The objectives of budget 2014 which is the well being of the
nation and its people can be archived through this tax changes.
Secondly, Malaysia government also review the income tax policy in budget 2014
which they decrease the personal income tax rates for residence by 1% to 3 %, increase 2
extra personal income tax bands (RM 100001 to RM 250000 and RM 250001 to RM 400000)
and the personal income tax rates for non-residence will reduce by 1%.7 The changes in
income tax rates will be effective on chargeable income on year assessment 2015 or the
income tax earners in 2015. The purpose for Malaysia government to reduce the personal
income tax rates is to increase individual disposable income which families with monthly
income of RM 4000 will no longer have tax liability.8 Furthermore, review individual tax

4 Ministry of Finance Malaysia. 2013. The Budget 2014.

5 Alyaa 2013. Speculation blamed for price hike for houses
6 Chang 2013. RPGT would not hurt genuine buyers
7 Ministry of Finance Malaysia. 2013. The Budget 2014.
8 Ministry of Finance Malaysia. 2013. The Budget 2014.
2

structure is also an assistance being extended to the people during the transition period for
implementation of the Goods and Services Tax (GST) in 1 April 2015.9Malaysia brain drain is
getting worse recently and 54 percent of Malaysia brain drain went to Singapore, 15 percent
went to Australia, 10 percent went to U.S., 5 percent went to U.K. and the remaining went to
rest of the world while in total it is approximately one million of Malaysian. 10Due to this
reason the review of income tax structure will enhance the competitiveness of the nation as
well as to retain and attract talent and skilled workers into and back to Malaysia.11Moreover
the increase of income tax bands will ensure a more progressive tax structure. To sum up, the
revise and review of income tax structure will achieve the objective of Malaysia budget 2014,
promoting the wellbeing of the people by reducing the personal income tax lead to increase in
individual disposable income and fostering economic growth by enhance the competitiveness
of the nation and retain as well as the attract talented and skilled workers into and back to
Malaysia.
The comparisons between the current and proposed individual income tax rates are as
follows: 12

Chargeable

Current Tax

Proposed Tax

Reduction

Income (RM)
1 5,000
5,000 20,000
20,001 35,000
35,001 50,000
50,001 70,000

Rate (%)
0
2
6
11
19

Rate (%)
0
1
5
10
16

(%)
1
1
1
3

9 New Straits Times 2013. Budget 2014: tax payers to enjoy higher disposable
income.
10 Lee 2011.Malaysia Brain Drain is getting worse says World Bank.
11 Ministry of Finance Malaysia. 2013. The Budget 2014.
12 Wong & Partners 2013. Hightight of Malaysian Budget 2014.
3

70,001 100,000
100,001

24
26

21
24

3
2

250,000
250,001

26

24.5

1.5

400,000
Exceeding

26

25

400,000
Another major tax change or measure was the proposal of Goods and Services Tax
(GST) which will be effective on 1 April 2015. GST is a levied tax 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. 13Moreover, the GST will abolish the current sales tax and services tax and it
rates at 6% which is a lower rate compared to the current sales and services tax which
imposed a rate of 10% and 6% respectively.14 The reasons GST will be propose in budget
2014 are GST will improve the public finances for the medium- and long-term benefit of the
people by various goods will be at zero-rated or exempted such as electricity supply to avoid
the escalating cost of living for the people. Due to the inflation rate currently in Malaysia is at
2% and it is low and contained so indeed it is the best time to implement the GST. 15 Besides
that, GST able to solve the problems at current tax system such as the double taxation that
impact on consumers, the absence of full tax relief on exported good and transfer pricing issue
that result losses to both consumer and government so GST is a fair and transparent as well as
comprehensive tax system which will benefit the nation and people.16 Furthermore, more than
160 countries in world has implemented GST so it is clearly demonstrate that GST is proven

13 Royal Malaysia Customs Department 2014. What is GST.

14 Royal Malaysia Customs Department 2014. What is GST
15 Teoh. 2013. Q&A: GST for dummies.
16 The Star Online. 2013. Budget 2014: Full Text of Prime Ministers speech
4

to be a transparent, effective and fair tax. 17 Moreover, the GST will be the source of
government which is less susceptible by the fluctuation of economy and help in increase the
development of country.18 Lastly, only the businesses with annual sales of RM500000 or more
have to register for GST, while others can be apply for it on a voluntary basis. 19To sum up,
the implementation of GST will help the government to achieve the objectives of Malaysian
budget 2014.
Question 2
Invigorating economic activity, strengthening fiscal management, inculcating
excellence in human capital and ensuring the well-being of the Rakyat are the objective of
Malaysian Budget 2014.20 In this section we will further analyze and evaluate the proposed of
GST as well as to what extent the GST and how the work of GST does can achieve the
objectives of Malaysian Budget 2014.
1.0 Fair Pricing to consumers
GST will be a better replacement and fair tax system which provide fair pricing to
consumers compared to current tax system, sales and services tax (SST). This is because
consumers may be duped by profiteering minded restaurant and food outlet operators who are
not qualifying to impose the 6% and 10% of SST. 21 According to Royal Malaysian Customs
Department stated only the operators of outlets who make an annual record sale turnover of
RM 100000 and upward can apply and get approval from the royal customs and excise
17 Ministry of Finance Malaysia. 2013. The Budget 2014.
18 Royal Malaysia Customs Department 2014. What is GST.
19 KPMG, Cutting Through Complexity. 2013. 2014 Budget Highlights.
20 Ministry of Finance Malaysia. 2013. The Budget 2014.
21 Hawkeye. 2011. Service tax loophole exploited.
5

department to bill the sales tax rates at 5% or 10% or at a specific rate and most services are
not subject to a threshold except for a few type of services where the thresholds are set at
RM150000, RM300000 and RM3 million a year can apply and get approval from the royal
customs and excise department to bill the service tax rate at 6%.22 For banks and financial
institutions the services rate charged on credits card will be rated at specific rate. 23However,
there are still lot of operators who use the 6% and 10% of SST to cheat on consumers and
gain millions of Ringgit Malaysia which does not contribute back to the government coffers.24
Furthermore, SST may duplicate or cascading effect which will increase the prices of
goods through the goods be taxed by SST for several times when the goods pass from
manufacturers to the retailers then to the consumers and this situation call double taxation and
having impact on consumers regard the prices of goods.25 For example, a carbonated drink is
subject to a sales tax of 10% then the drink costs will be RM11, RM1 is tax and assume the
carbonated drink is selling at a restaurant so the service tax is apply at rate 6% so in conclude
consumers will be paying RM11.65 (RM11 x 6%) for the carbonated drink. Thus, the
existence of two consumption tax systems can lead to a tax on tax which is the double
taxation and cause the consumers to pay for higher price in order to obtain the goods.
However, if the current consumption tax systems are replace by GST then the carbonated
drink sell at restaurant will be cost at RM10.60 (RM10 x 6%). This is because the problem of
double taxation is addressed in GST through the input tax credit mechanism. The tax paid by
the restaurant is recoverable as input tax credit and does not form part of the cost to him.26
22 Royal Malaysia Customs Department 2014. Sales Tax.
23 Ministry of Finance Malaysia. 2013. The Budget 2014.
24 Hawkeye. 2011. Service tax loophole exploited.
25 Kumaran & Simpson. 2013. Real impact of GST on cost of living.
26 Kumaran & Simpson. 2013. Real impact of GST on cost of living.
6

Therefore GST act as part of the governments tax reform programmer to solve the
matters such as double taxation as well as provide a fair pricing to the consumers and at the
same time does not increase the burden of cost of living to the Rakyat. How GST does work,
is through value added principle whereby input tax which is the GST incurred on business
purchase is offset against output tax where the GST is charged on taxable supplies made.27 In
the other word, businesses who charging under GST will be allowed to offset the GST it pays
against the tax it collects before paying the balance to the government and this method called
input tax credit mechanism. Thus, GST provides simplicity for businesses as they are required
only to submit simplified tax returns based on prescribed formats and the final tax of 6% will
be borne by the end of consumers.

2.0 Revenue to the government

The main source of government revenue is from the taxes they imposed. According to
the Royal Malaysian Customs Departments stated GST will be the revenue of government
which would not be susceptible by fluctuation of economy.28Therefore, government be able to
use their revenue to give more subsidy and development which in turn result invigorating in
economic activities and intensifying the urban and rural development.29 Furthermore,
government can use the revenue gained from GST to provide incentive in research and
technology which will result a boost in productivity and economic growth. Moreover,
President S.M. Thanneermalai said there is no point to introduce a new tax system which

27 KPMG, Cutting Through Complexity. 2013. 2014 Budget Highlights.

28 Royal Malaysia Customs Department 2014. What is GST.
29 Lim.B. 2013. 2014 Budget: GST will not Burden Consumers.
7

would not gain extra revenue from it.30 The proposed of GST will cause government to gain
an extra of RM 8billion revenue but return RM 4 to RM 5 billion of it to the Rakyat31 for the
purpose of invigorating the economic activities, inculcating excellence in human capital and
ensuring the well-being of the Rakyat. Upon Thanneermalai indicates the gain from GST will
not only help in the boost of economy of Malaysia it also help government to meet their
budget deficit.
3.0 The assistances and supports for implementation of GST by government toward Rakyat
and businesses
GST will be implementing on 1 April 2015 and in order to avoid the increase the burden of
Rakyat and escalating cost of living for the people as well as the smoothing of implementation
of GST, government has provide various forms of assistance and support during the transition
period. Firstly, cash assistance of RM 300 to households who are BR1M recipients.
32

Secondly, individual income tax rates be reduced by 1 to 3 percentage points for all tax

payers to increase their disposable income and saving. 33Next, introduce extra income tax
bands and the maximum of income tax rate will decrease to 24%, 24.5% and 25%. 34
Moreover, there are additional packages of assistance to GST by businesses. Firstly,
the corporate tax rate is reduced by 1 to 2 percentage points from the year of assessment 2015.
35

Whereas income tax rate for small and medium enterprises(SMEs) also will be reduced by 1

30 Thanneermalai.S.M., 2013. Revenue from GST can help government meet

budget deficit.
31 Thanneermalai.S.M., 2013. Revenue from GST can help government meet
budget deficit.
32 Ministry of Finance Malaysia. 2013. The Budget 2014.
33 Ministry of Finance Malaysia. 2013. The Budget 2014.
34 Ministry of Finance Malaysia. 2013. The Budget 2014.
35 Ministry of Finance Malaysia. 2013. The Budget 2014.
8

percentage point but in the year of assessment 2016 which means the SMEs income tax
earners on 2016, first RM 500000 chargeable income will be at 19% and the remaining of
chargeable income will be at 24%. 36The purposes for government gives incentive and provide
support to SMEs company is because SMEs contribute to the GDP of the country by 32%,
provide more than 50% of employment to the country and has the share of total exports by
19%.37Upon the data given by the SME Corporation Malaysia indicates the more incentive
and more assistance given to SMEs will help in strengthen the resilience of the Malaysia to
face a competitive and challenging global environment. According to the Statistics department
of Malaysia stated that the economic growth in developed countries such as Japan,
Korea, Taiwan and many others, was significantly generated by SME activities hence the role
of SME is very important in Malaysia and it will promote endogenous sources of growth and
strengthen the infrastructure for accelerated economic expansion and development in
Malaysia.38 Thus the assistance given by government for the GST purpose toward the SMEs
will help government to achieve the objectives of Malaysian budget 2014. Furthermore,
government also allow the tax deduction of secretarial fee and tax filling fee form the year of
assessment 2015 as well as the cost of purchasing ICT equipment and software is given
capital allowance until year of assessment of 2016 for the purpose of smoothing the
implementation of GST and would not increase the burden of businesses during it transition

36 Ministry of Finance Malaysia. 2013. The Budget 2014.

37 SME Corporation Malaysia. 2011. SME Master Plan 2012-2020.
38 Departments of Statistics Malaysia. 2007. SMEs: Building Blocks for Economic
Growth.
9

period. 39Lastly, training grant of RM 100 million will be provided to businesses that send
their employees for GST training in 2013 and 2014.40
More than these governments will establish a GST monitoring committee in order to protect
the consumer rights and overlook the price of goods and services provided by businesses.41
Although there is a misconception of GST being mistakenly taken and spread, with the
various special packages provided by the government certainly no parties should take the
opportunity to increase the prices of goods and services and cost of production. Therefore,
GST will not be a burden the Rakyat and businesses.

Conclusion
In conclusion as the discussion above, propose of GST can help government to
achieve the objectives of Malaysian budget 2014. Invigorating economic activity,
strengthening fiscal management and inculcating excellence in human capital can be achieved
by the government distributes the revenue gain from GST to the Rakyat. The well-being of
the Rakyat also can be ensured by government giving assistance and supports towards
consumers and businesses as well as the GST does work in fairly and transparently.

2427words

39 Ministry of Finance Malaysia. 2013. The Budget 2014.

40 Ministry of Finance Malaysia. 2013. The Budget 2014.
41 Ministry of Finance Malaysia. 2013. The Budget 2014.
10

Reference List
Alyaa.A. (2013). Speculation blamed for price hike of houses. Free Malaysia Today.
Retrieved from: http://www.freemalaysiatoday.com/category/nation/2013/09/28/speculationblamed-for-price-hike-of-houses/

Chang. (2013). RPGT would not hurt genuine buyers. The Star Online. Retrived from:
http://www.thestar.com.my/Business/Business-News/2013/11/09/RPGT-wont-hurt-genuinebuyers.aspx/
Departments of Statistics Malaysia. (2007). SMEs: Building Blocks for Economic
Growth. Retrieved from:
http://www.statistics.gov.my/portal/images/stories/files/journal/smes.pdf
Hawkeye. (2011). Service Tax loophole exploited. Free Malaysia Today. Retrieved
from: http://www.freemalaysiatoday.com/category/nation/2011/09/17/service-tax-loopholeexploited/
KPMG. (2013). 2014 Budget Highlights. Retrieved from:
http://www.kpmg.com/MY/en/IssuesAndInsights/ArticlesPublications/Documents/2013/budg
et-2014.pdf
Kumaran,R., & Simpson,T. (2013). Real impact of GST on cost of living. The Star
Online. Retrieved from: http://www.thestar.com.my/Business/BusinessNews/2013/10/21/Real-impact-of-GST-on-cost-of-living-It-helps-change-the-way-we-paytax-provides-more-transparent-s.aspx/

11

Lee. (2011). Malaysia brain drain getting worse, says World Bank. The Malaysia
Insider. Retrieved from: http://www.themalaysianinsider.com/malaysia/article/malaysiasbrain-drain-getting-worse-says-world-bank
Lim.B., (2013). Budget 2014: GST will not Burden Consumers. New Straits Times.
Retrieved from: http://www.nst.com.my/latest/font-color-red-2014-budget-font-gst-will-notburden-consumers-1.385214
Lim,J., (2013). Goods and Services Tax: GST ensures fair prices. New Straits Times.
Retrieved from: http://www.nst.com.my/opinion/letters-to-the-editor/goods-services-tax-gstensures-fair-prices-1.387931
Ministry of Finance Malaysia. (2013). The Budget 2014. Retrieved from:
http://www1.treasury.gov.my/data/speech/bs14.pdf
Royal Malaysia Customs Departments. (2011). Sales Tax. Retrieved from:
http://www.customs.gov.my/index.php/en/faqs/107-cukai-dalam-negeri/636-cukai-jualan
Royal Malaysia Customs Departments. (2014). What is GST. Retrieved from:
http://gst.customs.gov.my/en/gst/Pages/gst_wi.aspx
SME Corporation Malaysia. (2011). SME Master Plan 2012-2020. Retrieved from:
http://www.smecorp.gov.my/vn2/sites/default/files/Executive%20Summary.pdf
Teoh.E.S., (2013). Q&A: GST for dummies. Astro Awani. Retrieved from:
http://english.astroawani.com/news/show/q-a-gst-for-dummies-24528
Thanneermalai.S.M., (2013). Revenue from GST can help government meet budget
deficit. The Star Online. Retrieved from:
http://www.thestar.com.my/News/Nation/2013/10/28/Revenue-from-GST-can-help-Govtmeet-budget-deficit.aspx/
12

The Star Online. (2013). Budget 2014: Full Text of Prime Ministers Speech.
Retrieved from: http://www.thestar.com.my/News/Nation/2013/10/25/Budget-2014-PMspeech.aspx/
Valuation and Property Service Department. (2013). Real Property Gain Tax.
Retrieved from: http://www.jpph.gov.my/mobile/pdf/Real_Property_Gains_Tax.pdfs
Wong & Partners. (2013). Highlight of Malaysian Budget 2014. Retrieved from:
www.wongpartners.com

13