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Monday, August 13, 2018

GST vs SST. Which is better?


MALAYSIA’s decision to revert to the Sales and Service Tax (SST) from the Goods and Services Tax (GST) will result in a higher disposable income due to relatively lower prices it will incur in most goods and services.

Consumers will have a choice in their consumption – by paying service taxes based on their affordability and ability.

The coverage of GST was comprehensive and it covered too wide a sector. While it was able collect a sustainable sum of RM44bil for the country, it was not people-friendly.

The narrowing scope of the SST will at most, collect approximately RM23bil for the country but it will indeed relieve the people – so SST is needed by the people.

Methodology of SST

The Sales Tax Bill and the Service Tax Bill have just been passed at the Dewan Rakyat and are expected to get approval from the Dewan Negara when it convenes on August 20.

This leaves little room for businesses and entrepreneurs to get ready for the new tax regime in less than a month’s time.

Therefore, it is of utmost importance to understand the concept and mechanism of SST as stated in both the Bills.

SST comprises two legislations. The sales tax is imposed on the manufacturing sector as governed by the Sales Tax Act 2018 while service tax is imposed on selected service sectors, with one of the most notable ones being the food and beverage (F&B) service providers.

The Service Tax Act 2018 would govern the selected service providers and the details would be gazetted in the subsidiary legislation, PU(A) Service Tax Regulations 2018.

Finance Minister Lim Guan Eng has announced that the threshold for F&B providers is set at annual turnover of RM1mil.

This would mean that those who operate with less than RM1mil turnover would not charge service tax at 6%.

This translates into hawker food, cafes, take aways or food trucks being able to provide F&B at lower prices as compared to the GST regime of 6%. Consumers are deemed to be given an option to pay service tax or not, depending on their consumptions at places such as fast food outlets, restaurants or food courts.

Generally, living costs will be relatively lower in the SST era as the B40 group of consumers would certainly be relieved in their daily eating affair.

The existing GST regime sets up the threshold at RM500,000 per year, meaning that almost all restaurants, including simple mixed rice outlets, would have a GST of 6% imposed. The service tax regime would not impose service tax of 6% on service charge rendered in any restaurant or café operator.

Service charge in its true essence, represents tips or gratuity to the waiters working in the restaurant and it is entirely at the discretion of the F&B operators.

These operators may choose to charge from 5% to 15% or even free of charge. In summary, in the event service charge is imposed, it would not be subject to service tax.

SST is people friendly as the daily consumption of food and beverages would be much lower in price as compared to the GST regime. The imposition of service charge is not governed by any law and it is entirely at the discretion of the F&B operators.

In order to avoid disputes, it is advised that notice be placed outside the premises if the F&B operator is imposing a service charge ans the rate determined by them.

SST is one stage

Sales Tax is only imposed one time on the manufacturing company when a sale is made to a trading company. The subsequent sales of the goods by the trading company would have no sales tax imposed.

Business entrepreneurs must be mindful and careful in the cost management as Sales Tax – although imposed at 10% – would eventually result in a much lower pricing of goods as compared to the GST regime.

GST is operating on a value added concept with input tax available as deduction. The supply chain moving from manufacturers to distributors, dealers and to consumers would result in higher pricing as GST is imposed on final stage, comprising of value add and profit margin.

SST is a business cost

Under the GST regime, input tax is available as a credit or deduction against output tax based on tax invoice received from GST registrant suppliers.

This would mean that GST is never a business cost as deduction is available against output tax even though there is no sales generated. Sales Tax on the other hand, would be paid by the trading company purchasing goods from the manufacturing company.

It is a business cost and deduction is only available when there is a sale. This would mean that business cost would be higher as Sales Tax is part of the inventory cost and to be deducted as cost of sales when goods are sold or exported. In simple terms, no sales, no deductions.

Businessmen are urged to carefully analyse the cost and not overprice the goods for the benefits of the people and the sustainability of their businesses. The reduction of GST from 6% to nil would immediately translate a price reduction of 6%, which is a must for a businesses to adhere to.

Failure to adhere to the pricing would expose the operators to the fines and penalties on anti-profiteering governed by Price Control and Anti-Profiteering Act 2011.

As the breakdown shows, SST is well suited in the Malaysian environment, to both the business communities and the people.

Source: Dr Choong Kwai FattDubbed the Malaysian tax guru, Dr Choong Kwai Fatt is a tax specialist and advocate.

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    Go-ahead likely for Penang LRT


    GEORGE TOWN: The approvals from the federal authorities for the RM8.4bil Bayan Lepas light rail transit (LRT) and the massive Penang South Reclamation (PSR) scheme on the southern coast of the island are expected to be obtained before the end of the year.

    Sources told The Star that the approvals would be from the Department of Environment, the federal regulator overseeing Environmental Impact Assessment (EIA), and the Transport Ministry.

    The sources said if everything goes on as scheduled, the reclamation project for the three man-made islands would start early next year.

    “The LRT project might begin in January 2020,” they said.

    The LRT, together with a monorail, cable cars and water taxis, is part of the state government’s RM46bil Penang Transport Master Plan (PTMP).

    It will begin from Komtar in the northeast corner of the island and pass through Jelutong, Gelugor, Bayan Lepas and Penang International Airport before ending at the proposed PSR development comprising three man-made islands totalling 1,800ha near Teluk Kumbar.

    It is expected to provide a fast route to the airport and will traverse densely populated residential, commercial and industrial areas.

    There are 27 LRT stations along the alignment, with the maintenance depot located on the first island that is to be reclaimed on the island’s south coast.

    The alignment also factors in interchanges with future LRT, Sky Cab and monorail lines that are being planned, including one that will cross the channel to connect Gelugor on the island with the Penang Sentral transport hub in mainland Butterworth. The success of the PTMP depends on funding from property development on the PSR scheme.

    The Pan Island Link (PIL) 1 is another component which came to light recently as its Detailed EIA was on display at 10 locations in Putrajaya, Kuala Lumpur and Penang until yesterday.

    The proposed 19.5km highway links Gurney Drive to the Penang International Airport.

    SRS Consortium Sdn Bhd, the Project Delivery Partner (PDP), will call for the tender of the LRT and PSR via a Request for Proposal (RFP) exercise early next year, the sources said.

    SRS’s role is to supervise the projects until their completion and scale down the cost.

    It is learnt that there are currently six or seven companies interested in carrying out the LRT project and the reclamation work for the islands.

    “SRS will scale down the cost of the urban rail transport link connecting Komtar and Bayan Lepas, and also consider alternative proposals such as a monorail,” said sources.

    It is learnt that Scomi Engineering has recently proposed a monorail project costing about RM6bil, to the state government.

    A China company has also proposed to build a LRT link costing less than RM6bil.

    On the three man-made islands, it is said that more than RM4bil would be spent on the reclamation.

    “The cost is estimated to be over RM4bil because there will be a need to construct a dam and three power plants for the islands.

    “One of the islands will be used for indus­trial activities. There will be industrial lots developed for sale to overseas and local investors to generate funds for the urban rail transport link.

    “The other two islands will be used for building commercial and residential properties,” sources explained, adding that about RM17bil, which includes the cost for the LRT and PIL 1, has been approved.

    On the viability of trams as an alternative to LRT, the sources said the move would require relocating underground sewage infrastructure, power and telecommunications cables.

    “They have to be relocated because laying the rails for trams involves a lot of costly road digging. The LRT is constructed on an elevated platform and does not involve digging into the ground.

    “Furthermore, the roads in Penang are narrow, so using trams with other vehicles on the same road could cause accidents,” a source added.

    SRS Consortium, a 60:20:20 joint venture involving Gamuda Bhd, Loh Phoy Yen Holdings Sdn Bhd and Ideal Property Development Sdn Bhd, was appointed by the Penang government as the PDP for the implementation of the PTMP.

    Meanwhile, Chief Minister Chow Kon Yeow said he has written a letter to Prime Minister Tun Dr Mahathir Mohamad on June 29 to seek funds for the LRT project.

    “We have yet to receive a reply.

    “If the South island reclamation projects are not carried out, the state has no choice but to seek federal funds for the LRT,” he said during his speech at the state assembly yesterday.

    Chow had earlier said the major components of PTMP would be fully funded by revenues generated from the sale of reclaimed land of the PSR project.

    He said the fully funded nature of the components – the LRT and the PIL 1 – was unlike any other mega infrastructure projects currently being critically reviewed by the Council of Eminent Persons.

    The SRS Consortium was concluded to have the best overall proposal among six local and international bidders, which were evaluated based on qualities such as transport master plan proposal, delivery track record, financial standing and funding/business models.

    By David Tan The Star

    Implications of the 'RM19bil GST collected, RM18bil taken’ and RM19.4bil shortfall !

    https://youtu.be/Ew5Fk-ml6Mo 

    The immediate concern is the budget deficit for 2018 spiking to 4% if the GST refunds are made this year


    ON May 31, when Finance Minister Lim Guan Eng announced that the new government would be able to meet the budget deficit of 2.8% for this year, the sum of RM19.4bil that is to be refunded to companies since the goods and services tax (GST) was discontinued, never came into the equation.

    Now, since that money is not in a trust account that was specifically set up to meet the refund obligations, does the government need to borrow more to ensure it meets the refunds? In doing so, would it incur a bigger budget deficit than had been envisaged?

    There are wider implications on the shortfall of the RM19.4bil, assuming the refunds are to be done this year.

    The biggest challenge for Lim is to cover the shortfall to maintain the budget deficit for 2018 at 2.8%.

    The hallmark of the Pakatan Harapan government’s first 100 days of rule is to bring down the cost of living and cost of doing business. Towards this end, it has subsidised the price of petrol and diesel and removed the GST.

    The cost of keeping up with the Bantuan Sara Hidup and subsidy for petrol and diesel is estimated to be about RM6.2bil between June and December.

    Revenue loss due to discontinuing the GST from June 1 onwards is estimated at RM21bil.

    The shortfall is made up of cutting down government expenditure by RM10bil, increasing dividends from government agencies such as Khazanah Nasional Bhd and Petroliam Nasional Bhd, a higher petroleum income tax of RM5.4bil and proceeds from the implementation of the sales and service tax from September onwards.

    Nowhere was the RM19.4bil figure that is to be paid back to companies under the GST that was discontinued mentioned.

    Lim has said that the money was supposed to be in the trust account, but is not there and has gone “missing”.

    Former Finance Ministry secretary-general Tan Sri Mohd Irwan Siregar Abdullah has said that all proceeds from the GST went into the consolidated fund of the federal government. The amount to be refunded is allocated to the trust account monthly based on the requirements of the Customs Department and the financial position of the government.

    Customs director-general Datuk Seri Subromaniam Tholasy has revealed that since the GST was implemented on April 1, 2015, the total refunds amounted to RM82.9bil and the amount allocated to the trust account from the federal government consolidated fund was only RM63.5bil – representing a shortfall of RM19.4bil.

    Generally, refunds for the GST are to be done within 14 days. But the amount allocated is less because not all refunds are paid within the two-week period.

    At times, refunds are held back up to one year, pending investigations. Hence, the cash allocated to the trust account maintained by the Customs and the Inland Revenue Board (IRB) is less than the total amount due for refunds.

    For instance, in 2017, the amount allocated to the IRB trust account for refunds was RM7bil when the total amount to be refunded was more than that.

    In the case of the Customs, the outstanding refunds for 2017 was RM15bil, but the amount allocated was less.

    Under the previous government, the GST provided a steady flow of cash every month. The thinking was that the money for refunds should be allocated when it comes due to best manage the cash-flow position of the government.

    However, the view of Lim is that money meant for refunds should have been put into the trust account, irrespective of whether there is a need to pay immediately or otherwise.

    Hence, the issue is not really the question of the RM19.4bil meant for refunds going “missing”.

    It is whether the money is still in the consolidated accounts or whether it has been utilised. If it was utilised, did the government have the right to use it for other purposes in the name of cash-flow management?

    The bigger implication for the Pakatan government is how it is going to cover this RM19.4bil shortfall.

    One of the ways the government can cover the RM19.4bil hole without increasing the deficit is to cut more of the excesses.

    On this score, the Pakatan government has so far handled public funds in a more judicious manner compared to the previous government. It has cut down the budget for inflated infrastructure projects and stopped unnecessary spending.

    The light rail transit 3 and East Coast Rail Link projects are only some examples. It has stopped prestigious projects such as the KL-Singapore high-speed rail and the less glamorous mass rapid transit line 3 project. The government of today has earned full marks for being transparent and diligent in handling public finances.

    Despite declaring that the federal government debt is at RM1.07 trillion, business sentiment is at a seven-year high, while consumer sentiment is at a 21-year high.

    The stock market is looking good so far, much better than the likes of China and Hong Kong, although the improved sentiments are likely to be temporary.

    As for the ringgit against the US dollar, its performance is better against many of the Asian and emerging-market currencies. The tumbling of the Turksih lira and Russian rouble is testimony that the ringgit is not that bad after all.

    The government can probe, produce a White Paper or do anything else to look into the RM19.4bil shortfall, but the bottom line is that Lim and Prime Minister Tun Dr Mahathir Mohamad will have to face the reality of making up for a RM19.4bil shortfall in government finances for this year.

    Economists are predicting that the federal government budget deficit would be higher than the 2.8% estimated on May 31 this year on the assumptions are made this year. Some are looking at the budget deficit to be as high as 4%

    Would there be an impact on Malaysia’s credit rating and the ringgit?

    Yes, a spike in the budget deficit would have an impact for the short term.

    However, the government of the day will score brownie points in its drive to bring about reforms and governance in the management of public funds. Rating agencies would appreciate any government that promotes transparency and improves on its finances purely by spending within its means.

    So far, the government has done away with the GST and taken measures to put more cash into the hands of the people and business to improve domestic spending. The stabilisation of petrol prices and threemonth (June to September) tax-free period between the implementation of the GST and SST has put RM20bil into the hands of the people and businesses. This should help improve the domestic economy for a few months.

    However, for the longer term, investors and rating agencies will be looking at how the RM19.4bil hole in the federal government finances will be covered. What are the government assets that will be sold?

    Certainly, we are not looking at an expansionary budget come November this year.

    Source:  The Alternative view by M.Sshanmugam The Star

    RM19bil GST collected, RM18bil taken’




    KUALA LUMPUR: The previous government has not been able to refund companies their tax credit that came about following the implementation of the Goods and Services Tax (GST) because 93% of the money was not placed in the correct account, Finance Minister Lim Guan Eng revealed.

    He said some RM18bil of the RM19.4bil input tax credit under the GST system since 2015 was “robbed” by the previous administration.

    “I was very shocked when informed that this happened because the previous government had failed to enter the GST collection in the trust account specifically meant for the repaying of GST claims.

    “Instead, the Barisan Nasional government pilfered the trust account and entered cash GST collection directly into the consolidated fund as revenue to be spent freely,” he said when tabling the GST (Repeal) Bill 2018 during its second reading in Parliament yesterday.

    He said that as of May 31, the outstanding GST refund stood at RM19.397bil whereas there was only a balance of RM1.486bil in the repayment fund.

    Lim said from the total input tax credit, RM9.2bil or 47% was recorded between Jan 1 and May 31 this year, RM6.8bil or 35% in 2017, RM2.8bil (15%) in 2016, and RM600mil (3%) in 2015 (from April 1 to Dec 31, 2015).

    Under GST, the input tax credit allowed businesses to reclaim credit for taxes paid on purchases, subject to filing of input tax documents.

    In his winding-up reply, Lim said a comprehensive investigation would be carried out to determine the cause of the missing funds.

    When debating the Bill, Lim also said he had asked for documents to show how the input tax had ended up in the consolidated fund.

    “I asked the Chief Secretary to the Government for the Cabinet papers on the matter.

    “However, he told me he could not remember anything of such,” he added.

    Lim said former Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz, when told of the missing funds, said it was imperative that the money was returned to the claimants as it was fiscally moral to do so.

    Later, at the Parliament lobby, Lim said a former Treasury secretary-general may have been aware of the missing RM18bil.

    The previous government, he said, had committed wrongdoing over the missing funds.

    “I would assume the previous KSP (ketua setiausaha perbendaharaan/Treasury secretary-general) would have known about this.

    “We want something definite because we want to look at the circle of decision-makers,” he said.

    By martin carvalho, hemananthani sivanandam, rahimy rahim, and loshana k shagar The Star

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