1.0 Introduction

In many developed countries, the application of Goods and Services Tax (GST) or

known as Value Added Tax (VAT) in some countries has been implemented in so many

years especially in Europe countries. The beginning of GST is made to replace the

government service tax and sales and service tax in enhancing and standardized the collection

of tax in a country.

Before the application of GST in Malaysia, the existence tax that we used in

collecting the revenue is one of that is sales and service tax which introduced in 1972 and

1975. The rate for the sales tax is 5% - 10% and for the service tax is 6% for specific credit

card which is counted as separated. It is means some of the goods and product does have the

taxes such as foods, drinks, furniture and etc which has non-fixed tax rate compared to the

GST. Furthermore, the sellers or providers can implies the tax as they like during the sales

and services tax.

Meanwhile the implementation of GST in Malaysia has been effectively started in

April 2015 during the announcement of Budget 2014 which has been announced by the

government at the rate of 6% and this tax will be replaced the sales and service tax. The

objectives of the implementation are to improve the tax collection in Malaysia which is

introduced more systematic tax collection in the country compared to previous one. Basically

the GST is a wide and based on the value-added concept, and the tax is more to broad based

tax consumption. In other hand, through GST, the tax burden bear by the consumers during

the purchase. The company or firm does not pay a tax since the tax borne by the consumers

and the firm after they registered they can claim from the government the input tax credit in

compensate against the GST levied towards the goods and services which supplied to the

customers.

As the GST applied the tax burden towards the customers, the business or firm does

not to borne the tax and the company can claim and because of that, it is one of the reason to

attract the sellers in registering the GST through Customs Department of Malaysia. Besides,

the government can reduce the cases of tax avoidance among the business or company in the

country. The outcome from the GST through the collection will help the government in

increased the allocation in term of development expenditures such as schools, hospitals,

public transport and many more. What is the concern is the distribution of national income

towards the citizens.

2.0 History of GST

Since the previous tax applied which is known as sales and services tax benefits the

producers and firms not the government, the implementation of the GST started effectively in

April 2015 has arise some issues among the citizens either the new introduction of tax

imposed to the citizens are affordable or it is a burden to the peoples.

The argument regarding the new tax is popular among the citizens at that time

including the opposition parties which some of them agree and some not involving the

professionals, academics and the peoples of course on how GST influence the price to

decrease or increase. For the information GST was been introduced in 1950’s in France and

has been adopted in various more than 120 countries including the European countries. The

application of GST involving a multi stages compared to the sales and service tax which

related to the one stage only. According to the Rozlan (2015), in 1983, the Malaysian

government has sends a research team to South Korea to study the potential of GST in

implementing the sustainable, broad based consumption tax system. The next step taken by

the government, on 21st October 1988, the Minister of Finance during that time Tun Daim

Zainuddin told the citizens that the government considering implementing the GST.

The announcement of GST in the early phase has been announced by the Dato’ Seri

Anwar Ibrahim, the Minister of Finance on 30 October 1992, however later on it was been

postponed. For the next few years, the government once more try to bring back the GST in

the country through the budget announcement on 10th September 2004, made by the Tun

Abdullah Haji Badawi, Prime Minister during that time announces for the 2005 Malaysian

budget which would become effectively by 1 January 2007. Later on it was deferred in 2006

to give a time to the business and company to adapt the changes and preparing the documents

and information to their staffs in handling the GST and the government agency especially

Customs department needs to preparing themselves in managing the transaction and the

documentation involving many company that need to be registered and in claiming the tax.

Meanwhile around the world, as at 2013, there are 160 countries that already changes

to the GST, in ASEAN countries involved 7 countries, ASIA 19, Europe 53, Oceania 7,

Africa 44, South America 11, Caribbean, Central and North America 19. In comparing the

with the ASEAN countries the highest rate of tax rate is Philippines which is 12% and

Malaysia has the lowest tax rate 6%.

Country Year of

Implementation

Initial Rate % Current Rate

Indonesia 1984 10 10

Thailand 1992 7 7

Singapore 1994 3 7

Filipina 1998 10 12

Cambodia 1999 10 10

Vietnam 1999 10 10

Laos 2009 10 10

Malaysia 2015 6 6

Figure 1.0: The tax rate among the ASEAN Countries.

The table above shows that the tax rate among the ASEAN Countries which stated

that the Philippines increased their tax rate to the 12% compared in early imposed of the GST

as 10%. The other neighbourhood countries like Indonesia, Cambodia, Vietnam and Laos

records the same tax rate. In the other hand, the Singapore has increased their rate from 3% to

the 7% and Thailand still remains their tax rate.

Based on the blueprint of GST, there are some products that considered as zero rated,

such as agriculture product in supporting the local farmers, livestock supplies, fish,

crab,oyster , water usage to domestic users, rice, flour, salt , sugar, cooking oil, poultry and

eggs , exported goods and services and first 300 units of electricity. This exemption is made

by the government in reduce the cost for the citizens in their daily life to keep survive. It is

one of the approaches taken by the government in helping the peoples to improve their

standard of living and increase their economy. Even though it is not much, but it is does help

the poor people especially in rural areas and urban areas.

3.0 Analysis of GST in Malaysia

3.1.0 Impact towards low income households.

The proposed GST that implemented in Malaysia is a regressive tax (Kim Hwa & Qi,

2013). It is means it will impose a small burden towards who are richer. Furthermore, it is

expected that the lower income earners pay more GST as compared to the higher income

earner. It is possible for the government in reducing the tax for the low income people.

The GST implementation may raise issues towards the social mobility for households

(Zhou et al., 2013). Practically, low- income households spend more on essential items like

the foods and etc. In the globalization era, every transaction required a technology, without

proper or sufficient money and saving it would cause people to left behind. Moreover

insufficient savings, the low income household may facing a huge difficulties in managing

their daily life especially involving the education and information technology. In the other

side, the implementation of GST will benefited the wealthier people because they have a

saving and spend less compared to the lower income groups (Zhou et al., 2013). A study

conducted by Palil & Ibrahim (2011), stated that the low- income group are actually concern

and worried about the GST will increase the prices of goods in future and of course it would

increase the living cost. However the existence of Zakat does help the low income groups in

facing the living cost and there are some aids that given by the government in helping them to

live in a good environment.

3.1.1 The outcome of GST in Malaysia

In implies of the GST in any countries it is not easy as we seen, requiring a lot of

discipline and determination among the government, businesses and the citizens and most

difficult reforms a government undertakes.

Furthermore it is related to the collection of money, claims from the businesses and

etc. The GST itself really requires high skills and determines the desire of policymakers and

politicians (Alex, 2016). In comparing with a country like New Zealand which were been

applied the GST since 1986. The country has going through updates time to time and it is

accepted as the cornerstones of the economic growth. Besides, the implementation of GST in

Australia has struggled to modernise their tax system in boost up the economic growth in

gaining more revenue. Meanwhile in Malaysia, we can say the implementation of GST in our

country can be counted as a success due to the efforts by the government in promoting GST

and enhancing the tax collection.

Even though there are some flaws which related to the velocity at which many

businesses are not readily preparing for GST and the short period that given by the Royal

Malaysian Customs had for implementation. Nevertheless, with the high encouragement and

supports from the Customs, the businesses are success in adapting to the new rules and

regulations and processes. Moreover, the collection from GST which is well ahead of

forecasts. The revenue collection for 2015 is RM 50 billion since the introduction of GST

compared to the RM 37 billion collected in 2014 collected in 2014 without GST. The

government gains more revenue with the existence of GST and through that more

development expenditures can be allocated and many facilities can be developed in

improving the standard of living among citizens especially for the low-income group.

In addition, the economy has expanded by 5 % for the last year and was slightly ahead

comparing to the forecasted growth rate of 4.9 % (Alex, 2016). In term of businesses aspects,

some of them view the GST as a new dimension and change and transition can be a challenge

to the company or organisation. Besides, based on the recent survey covers in Malaysia and

across Asia Pacific shows the business confidence in Malaysia is strong. With the 70 % of

respondents said they will grow more and increase their sales and productivity. Due to the

results it is shows a 10 percentage of increase for last year surveys.

As time passes by, the system of tax collection will be more systematic, the linking

between government agencies and businesses become more reliable and more participation

among company and firms in registering the GST for their own benefits. Higher revenue

collection made by the government more spending can be allocated towards the citizens. As

development and facilities are well equipped in the country it would contribute to the

tremendous economic growth for the country because of the people are in stable economic

condition and at the same time generate more income.

4.0 Conclusion

In a nutshell, in the early beginning of the introduction of GST in Malaysia, there are

some arguments either the implementation of the GST will bring a success towards the nation

or just a some bad ideas that will contribute negative impact to the country and specifically

towards the economic performance and growth.

The involvement of the businesses and firms and supports from the Royal Customs of

Malaysia in making sure the implementation of GST has aligned with the objectives and

targets from the governments. Without the supports from the businesses and commitment

from the customs and other government agencies in promoting the benefits of GST in long

term it would lead to the failure. Even though there are some objection from several parties

and society, the GST implementation has been success being implemented in our country.

After the tax collections become more effective and efficient it would be as a one of the

major revenue for the government.

In term of acceptance by the public, time by time the citizens can accepted the

implementation of GST even though in the early phase of implementation some of them have

opposed the implementation of the tax. Later on, with the right promotion and road tour by

minister and ministry in giving a clear pictures to the people, they can accepts the

implementation and supports the new tax in helping to generate more income for the

government. With the right promotion and information, it would increase the support from

the citizens towards the implementation. The government need to come out with the fresh

idea in giving a clear pictures to the peoples such as a graphic information to the youths as a

new generation that are also will contribute to the national income in future. Besides, the

information to the rural areas are also need to be distributed so that they will get a clear

understanding regarding what the GST is all about.

Last but not least, the government should convince that GST will not increase the

good prices significantly. In this situation the government needs to wisely brief to the public

in term of pricing, how the price is increase and even though the prices need to be increased

the government should come out with the good ideas and alternatives in reducing the cost or

at least reduce the burden for the lower and middle income earners like reduce the income tax

rate.