EY Young Tax Professional of the Year 2014 Malaysia

Prepared by:

Ong Xia Xun
910526-14-5179
Sunway University
Business School
Bsc Accounting & Finance
March - Year 2010
09006057@imail.sunway.edu.my
+60173006665
Essay Question 2




I confirm that I understand what plagiarism is and that this essay is my own work. All contributions
from other authors are duly referenced and acknowledge.
Ong Xia Xun 09006057@imail.sunway.edu.my

2
A consumption taxalso known as an expenditures tax, consumed-income tax, or
cash-flow taxis a tax on what people spend instead of what they earn. Or, as
economists Alvin Rabushka and Robert Hall put it, taxing income taxes what people
contribute to the economy, while taxing consumption taxes what they take out. (Al
Ehrbar, 2008)

The Goods and Service Tax (GST) is a progressive tax which will benefit Malaysians
as it depends on consumption. Many Malaysians do not pay income tax," Najib said.
GST is scheduled to be implemented in April next year and many Malaysians, already
reeling from the rising cost of living, are concerned about making ends meet. (LEE
SHI-IAN, 2014)

Example :

Without GST :

Sales is $ 100
Cost is $ 80
Profit will be $ 20

The business profit of $ 20 will subject to income tax.

With GST :

Sales is $100 x 6% = $ 6
Cost is $80 x 6% = $ 4.80
$ (6-4.80) = $ 1.20 pay to tax custom.

Profit gst ($20 1.20) = $ 18.80 ( which subject to business income tax)

The producer able to reduce their payable tax may lead to increase their profit margin,
thus, can reduce the selling price as well.


Ong Xia Xun 09006057@imail.sunway.edu.my

3
(Royal Malaysian Customs Department, 2014) says that GST is a broad based
consumption tax covering all sectors of the economy, example like all goods and
services made in Malaysia including imports except specific goods and services
which are categorized under zero rated supply and exempt supply orders as
determined by the Minister of Finance and published in the Gazette.

Standard-rated supplies are goods and services that are charged GST with a standard
rate. GST is collected by the businesses and paid to the government. They can recover
credit back on their inputs. If their input tax is bigger than their output tax, they can
recover back the difference.
When a good or service is GST-exempt, the good or service provider has to absorb all
GST charged on any input. While the consumer does not in principle pay GST on the
final good or service, there will be an element of GST involved from the cost of the
inputs, which could raise the final price. GST-exempt goods or services thus may
actually have GST embedded in the price consumers pay. These are non-taxable
supplies that are not subject to GST. Businesses are not eligible to claim input tax
credit in acquiring these supplies, and cannot charge output tax to the consumer.
When a good or service is instead zero-rated, the good or service provider has the
right to reclaim from Customs any GST paid on inputs. In other words, not only does
the consumer not have to pay any explicit GST on those goods or services, there is no
embedded GST from inputs in the final price either, because the government refunds
the tax.

These are taxable supplies that are subject to a zero rate. Businesses are eligible to
claim input tax credit in acquiring these supplies, and charge GST at zero rate to the
consumer. As an example, rice is zero-rated item but the things used to produce rice
and process it such as fertiliser, plastics and transport for distribution will all be
charged with the GST, said Parames. (HISHAMH, 2014)

The citizens do have a choice on what they need and what they desire, which depends
on their purchasing power. Lets say a man can buy chicken ( raw material ) and cook
at his home then what he purchase is categorise under zero rated supply. But if he
Ong Xia Xun 09006057@imail.sunway.edu.my

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chooses to eat at fast food restaurant, whatever he consumes will be subject to
additional 6% of GST. While, when he need medical supply or public transport like
LRT or Rapid bus, that will be categorise under exempted supplies.

The implimentation of GST will overcome the problem of too many tax evaders in
Malaysia due to the progressive GST system is effective, which result shown by many
other countries who currently practising it.

S&P said reforms the government should look at include the introduction of a goods
and services tax (GST) and subsidy cuts. We may raise the sovereign credit ratings if
stronger growth and the governments effort to reduce spending result in lower-than-
expected deficits, as indicated in the 10th Malaysia Plan. With lower deficits, a
significant reduction in government debt is possible. We may lower the ratings if the
government cant deliver the reform measures to reduce its fiscal deficits and increase
the countrys growth prospects. These reforms may include, but are not limited to, the
GST and subsidy reforms on the fiscal side, and private investment and economic
diversification reforms on the economic growth agenda, said the ratings agency.
(Lau, 2012)
The government had proposed GST since 10 years ago, but there is no any
implimentation until the rating agency voices up to downgrade our bond. So the
progress of current GST able to enhance the country economy or just to avoid the
lower rating ? Its still an unknown answer until the day 1
st
April 2015.


Ong Xia Xun 09006057@imail.sunway.edu.my

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Bibliography
Al Ehrbar. (2008). Consumption Tax . Retrieved from
http://www.econlib.org/library/Enc/ConsumptionTax.html

LEE SHI-IAN. (2014, May 5). Consumption tax will benefit everyone, says Najib.
Retrieved August 10, 2014, from
http://www.themalaysianinsider.com/malaysia/article/consumption-tax-will-
benefit-everyone-says-najib

HISHAMH. (2014, February 24). The Meaning Of Zero Rated . Retrieved August
12, 2014, from http://econsmalaysia.blogspot.com/2014/02/the-meaning-of-
zero-rated.html

Royal Malaysian Customs Department. (2014, January 14). What is GST.
Retrieved August 12, 2014, from
http://gst.customs.gov.my/en/gst/Pages/gst_wi.aspx

Lau, L. (2012, September 6). Malaysia risks credit downgrade if reforms not done -
See more at: http://www.themalaysianinsider.com/malaysia/article/malaysia-
risks-credit-downgrade-if-reforms-not-done-says-sp#sthash.LzvAGgVc.dpuf.
Retrieved August 11, 2014, from
http://www.themalaysianinsider.com/malaysia/article/malaysia-risks-credit-
downgrade-if-reforms-not-done-says-sp