4/7/2015

RealimpactofGSToncostoflivingBusinessNews|TheStarOnline

irst,letsconsiderhowthecurrentconsumptiontaxregimeworks.Mostwillbefamiliarwith
servicetaxwhichischargedat6%onselectedservices,forexamplethoseprovidedbyhotels
andrestaurants.
Asecondconsumptiontax,possiblylessfamiliartomany,issalestaxwhichischargedon
certainmanufacturedorimportedgoodsandis,inmanyinstancespaidbeforethegoodsreach
theconsumer.Salestaxisinsomecircumstanceshiddenfromtheconsumer.Forexamplea
carbonateddrinkissubjecttoasalestaxof10%,butthetaxisnotgenerallyitemisedtothe
enduser.IfthedrinkcostsRM11,RM1istax.However,asfarastheconsumerisaware,heis
buyingadrinkforRM11,notRM10+tax.
Theexistenceoftwoconsumptiontaxsystemscanleadtoataxontax.Considerforamoment
thecarbonateddrinkexample.(seetable1)
NotonlydoestheconsumerpayanadditionalRM1.08intaxunderthecurrentsystem,the
hotelsprofitcarriesa6%servicetaxonthesalestaxchargedbythemanufacturer.
TheproblemofdoubletaxationisaddressedinGSTthroughtheinputtaxcreditmechanism.
Thetaxpaidbythehotelierisrecoverableasinputtaxcreditanddoesnotformpartofthecost
tohim.
Sodidthecarbonateddrinkbecome6%moreexpensive?Underthecurrentsystem,thedrink
coststheconsumerRM14.58.UnderGST,thedrinkwillcosttheconsumerRM13.25,thatis
9%(orRM1.33)less!
Theexampleisarathersimplisticviewandignoresthelongersupplychainandthepotential
cascadingeffectoftheembeddedsalestaxcost.Salestaxispaidonceatthemanufacturer/
importlevel,whereasGSTwillapplyonthevalueaddedateachstageofthesupplychain.
Anotherimpacttobeconsideredisthatinputtaxcreditwillnotbeavailableforexemptsupplies
(likehealthcareoreducation,inthetablebelow).Thismeans,whiletheconsumerwonthaveto
payaGSTontheseitems,thefinalpricetheypaymaystillbehigherthanbefore.Thisis
becausetheactualcostofmakingtheseexemptsuppliesmaystillincreaseduetotheGST
incurredonmaterialsetc.Thehighercostsmaybepassedontotheconsumerintheformof
increasedprices,albeitnotbyasmuchas6%.
Therefore,wecannotexpecttopay9%lessfordrinksinfastfoodrestaurantsunderGST.So
whatwillwepay?
ThePriceControlandAntiProfiteeringAct2010makesitillegalforbusinessestoincrease
pricesby4%acrosstheboardwiththeintroductionofGST(assumingGSTisintroducedata
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4/7/2015

RealimpactofGSToncostoflivingBusinessNews|TheStarOnline

rateof4%)andanypricingdecisionsmadebybusinessesmustbejustifiableotherwisestiff
penaltiesmayapply.
TheTaxReviewPanelintheirpresentationtothebusinesscommunityforecastthata4%GST
wouldpotentiallyshowareductionof0.10%intheconsumerpriceindex.Theyalsoprovided
anassessmentofpotentialpricechangesonarangeofgoodsandservicesbasedonan
assumedGSTrateof4%.(seetable2)
AswellasexcludingspecifiedbasicnecessitiesfromtheGSTnet,theGovernmenthas
indicatedthatdirectassistancewillbegiventolowerincomegroupsandchangestopersonal
taxratesarealsoexpectedtoreduceadversepriceimpactuponimplementationofGST.The
introductionofGSTwontautomaticallymakeeverythingmoreexpensive.Whatitwilldois
changethewaywepaytaxandprovideamoretransparent,streamlinedandfairertaxbased
onourconsumptionpatterns.

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