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Nov
14

Benefits of Implementing GST

written by IT Evangelist
GST Malaysia 2015

GST Malaysia 2015

GST is a good system for a country tax system, following is several reason that a country should implement a GST system :

1) GST is less susceptible to economic downturn because GST is a Consumption Tax, thus this can generate a stable source of revenue compared to income tax.

2) GST is more efficient because of “self policing”, “in-build cross checking features”, “enhance tax compliance”, and “less bureaucracy”.

3) Eliminate the weaknesses of Sales Tax & Service Tax. ( cascading effect & double taxation, compounding/pyramiding effect, tax embedded in goods exported, and transfer pricing ).

Example of Weakness of Sales Tax & Service Tax :

Cascading Effect ( Service Tax ) :

An Architect Services ( RM 22,580 ) including following costs :
–  Telecommunication Services ( RM 1,000 ), Price = RM 1,000 + 6% = RM 1,060.
– Legal Services ( RM 6,000 ), Price = RM 6,000 + 6% = 6,360.

Cost Charges = RM 30,000 ( RM 22,580 + RM 1,060 + RM 6,360 )
Service Tax = RM 30,000 x 6% = RM 1,800.

Consumer Pay = RM 31,800.  Toal Tax Paid = RM 2,220.

NO Cascading Effect ( GST) :

An Architect Services ( RM 22,580 ) including following costs :
–  Telecommunication Services ( RM 1,000 ), Price = RM 1,000 + 6% = RM 1,060.
– Legal Services ( RM 6,000 ), Price = RM 6,000 + 6% = 6,360.

Cost Charges = RM 29,580 ( RM 22,580 + RM 1,000 + RM 6,000 )
GST = RM 29,580 x 6% = RM 1,774.80

Consumer Pay = RM 31,354.80.  Toal GST Paid = RM 1,774.80.

Save RM 445.20.

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