Tuesday, 2 March 2010

The reality of GST

In the past weeks, I have been trying to explain GST to a lot of people; ranging from acquaintances to friends to colleagues to business heads. I ended up with a common conclusion… it is very difficult to get these people to understand the technicality of GST.

I suppose I should be glad. If everyone can comprehend the topic easily, people like us will be out of job…

Anyway, I have tried to explain one very important component of GST, i.e. input tax. I even tried to
sexitised the topic, but people only got the sex part, not the concept. Let me tell you, it is an element that will impact us all.

Right… let’s not get technical. The thing is, input tax recovery rate will impact costs composition of companies. It means, the profit of companies will be affected. But do you think companies will allow their profit to be impacted?

All the best tax brains in the country have been hired by big companies to ensure that these companies will not incur additional cost due to non-recovery of input tax. They are screaming to the relevant government agencies, that they want full recovery rate. And behind the scene, they are plotting, that if there is no full recovery, any additional cost will be passed on to consumers.

It simply means… prices will increase…

In consultations with the govt authorities, agencies or discussions in industry associations, I have heard how these people refer to companies as “we” / “I”, saying things like… “I don’t want to incur out of pocket costs”… “We will be suffering if we don’t get this through”… and the ultimate…

“If we don’t get it, we will just pass the cost to customers. We have no choice”

Isn’t it amazing (and sad), that humans can be so focus when they have been “paid” and forget that they too, are part of the community. They, their families, their friends… are the “customers” they are referring too. But they can’t see that far, they only see the salary and fees that the companies pay them.


1 year ago…
How tasty are your nasi lemaks?Behind the economic scene

2 years ago…
London cooking adventure

15 comments:

Planet of the Monyets said...

I am one of the many who still has not yet figured out the impact of GST on my business. Still enjoying the bliss associated with ignorance.

kyliemc said...

haiz...i hate it when i know GST is gonna be 'introduced' here...

deus X machina said...

Only 15% from Malaysian are eligible to pay income tax
how come govt can introduce GST that need to pay every day, every time....

the exit door for them are open widely....2013

ZACL said...

I think I put my comment on the wrong post---trying get used to a new laptop and trackpad. It's all taxed as well.

I thought we were talking about time zones, like BST, till I read on. Time zones are taxed as well, by travelling to them.

Pinknpurplelizard said...

I still find it absolutely stupid that GST is being implemented. GST is usually implemented in developed countries. Msia is nowhere near developed (going backwards instead).

Most government officials have little clue what percentage will be implemented onto what either. Funny thing is that the 'GST exempted' items are too.

I've no knack for taxation or numbers but GST will definitely affect everyone esp those who spend heaps. :P Pls do correct me if I'm wrong.

Mizzsharon said...

From my point of view..

Yes, GST will impact not only the final user [Us, the consumers] but also businesses and the likes. Coz its a COST/EXPENSE to the biz.

I don't have any qualms against GST. It is Tax revenue earned by the Gov which will inevitably be spend back on the public. Visualizing the cycle yet?

Anyway, what I think shud be done is to INCORPORATE GST into all Goods and services. I hate it when you go to a restaurant.. and they service tax u 5%-15% on top of total cost. Its stupid. Most countries don't even do that anymore.

INCORPORATE GST into G+S so people won't complain anymore! So hard ke?
Sorry I realize this is going a bit too long.. Anyway, good read =)

eiling lim said...

Oh well, self comes first and then the "others". Usual la...

ZACL said...

GST is, it appears, what we in the UK call VAT = value added tax. It adds extra value, that translates as money, to the cost of an item. We usually see an inclusive price, and sometimes receipts will show the analysis of the cost. That is price plus the tax. It is currently set at 17.5% and I have no doubt it will increase after our elections. Whichever party takes government, the tax take has got to increase to off-set the debts that have been highlighted because of the global banking crisis. Services attract the tax, not just purchases.

At present, we have exemptions such as books, children's shoes and clothing up to a certain size. There are luxury items that attract a higher purchase tax.

We may grumble, but we have no choice but to live with it. The tax, any taxes, do not have much to do with the state of development of a country; it is supposed to be about fiscal management. In real underdeveloped nations, the tax take can be about other behaviours.

InjusticeSistem said...

GST is important. Our Govt vision is to mk Msia a high tech high income country by 2020. In order to achieve this, we need massive funds to implement :-
1) World class education such as uitm to produce world class graduates to launch our country into da 21st century.
2) World class infrastructure such as PKFZ to attract Fortune 500 companies to move their HQ to Msia, making Msia the center of financial/technology of the world
3) World class sports stadium n race track to show da chinese in Beijing if they can do it, we will do it BIGGER. We already hv our own F1 team remember? Dis time we are 1 step ahead of da chinese haha

We hope every Malaysian citizen will support GST n the vision of our visionary Prime Minister. If you are not happy,you are free to pursue greener pasture in 'prostitute country' or 'beggar country'.....
TQ for voting for US(UMNO Supreme)n us only....

* da above commercial is brought to you by Filem Negara Malaysia

immabastard said...

Usual blah-blah-blah from people who don't really understand WTF they're talking about.

Tax comes in one form or the other.

I'm referring to comments here, but the post anti-business stance must be addressed.

Zewt, once you own your own business, you'll understand.

The whole concept of wealth accumulation and the modern economy is to promote competition and advancement via profit making venture.

If everyone is Mother Theresa and do things for charity, they'll be no progress. Period.

"Joe" who is constantly craving said...

i find it still very funny that people still have misconceptions that GST is something so bad that will haunt the country..

heck, GST is all over the world, if one fails to notice..

zewt said...

Planet of the Monyets - i can help!

kyliemc - haha... many too!

deus X machina - nah... that might not happen...

ZACL - haha... yup... not BST... if they wanna tax time, there are plenty around :P

pinknpurplelizard - it's not exactly stupid. it's just that, the way we implement it and how the money will be used, that's our concern.

zewt said...

Mizzsharon - hello there. yeah, we must really know much we are paying beforehand and not get the news when the bill is served. typical malaysia.

eiling lim - humans...

ZACL - for us malaysians, it's the usage of tax money collected. they often disappears.

InjusticeSistem - hahaha... i always like your sarcasm... hehehe...

immabastard - if everyone is mother teresa, we dont need progress.

constantly craving joe - i never said it is bad.... just that when this country does it...it can be... i am sure u know what i am trying to say here.

Anonymous said...

In my view the businesses will not incur additonal costs with GST but rather some will have increased profit margin with GST. End consumer definately pay more. Look at this simple example:-

(i) Say, currently, mfg sells item A to distributor at RM10 and item A now has 10% sales tax (RM1).

(ii) Distributor's cost becomes RM11 (RM10 + RM1) and say he makes a margin of RM1 and sells item A to end customer at RM12.

Under GST environment:-

(i) Mfg. will sell item A to distributor at RM10 + RM0.40 (GST@4%) i.e. RM10.40.

(ii) Distributor is good and does not increase selling price of item A to end customer so he maintains pre GST selling price of RM12, but he now has to impose GST and collect from end customer to remit to govt (not his own pocket) so the selling price is set at RM12 + 4% GST = RM12.48. So customer pays RM0.48 more although the 10% sales tax has been replaced by a mere 4% GST.

(iii) Distributor, collects RM0.48 GST from end customer but has paid RM0.40 to manufacture, so he remits the difference of RM0.08 (RM0.48 - RM0.40) to govt.No GST cost borne by distributor.

(iv) Pre GST, distributor makes margin of 9% (i.e. RM1 profit over his cost of RM11 and selling price of RM12).

(v) In GST environment, distributor makes profit margin of 20% (his cost of RM10 and selling price of RM12). Profit margin doubled but selling price remains the same!

Taxman

zewt said...

Taxman - hey... sorry for the late reply, totally missed this one. and sorry again, i am a bit lost there. anyway, i think distributor will not see it that way. every businessmen, particularly those in malaysia, have a i-must-make-more mentality. they will leverage on this. but then again, looks like GST will be shelved once again.