The Goods and Services Tax (GST) was first planned to be introduced in the 3rd quarter of 2011 by the government of Malaysia. But the launch was postponed due to avid criticism, and the tax finally came into effect on 1st April 2015. The primary objective behind the new and improved GST tax system in Malaysia was to replace the existing Sales Tax and Service Tax, which were prevailing in the country for several decades. GST meant an additional income for the government, as they were merely dependent only on the revenue generated from PETRONAS (Petroliam Nasional Berhad), Malaysia’s state-owned oil company.
What is GST?
Goods and Service Tax in Malaysia is a single taxation system in the economy levied on all goods and services in the country. The earlier taxation structure, i.e., sales and service tax, which was 5-15%, was reduced to 6% by GST implementation in Malaysia. All the goods and services offered in the country would be charged at 6% tax.
GST, one of the most important and biggest tax reforms in the country, eradicates most of the tax systems like sales and service tax, VAT, and other indirect taxes which were imposed by both Central and State governments at different prices.
Advantages and Disadvantages of GST in Malaysia
Like any other reform in the country, even GST has had its pros and cons in Malaysia. Let us see what benefits and drawbacks GST brought to the economy.
- Easy and Simple Registration Process
Compared to any other tax registration process, GST registration in Malaysia can be done with ease. GST registration has been made online which makes it simpler for people who are doing company registration in Malaysia for the very first time. Even for the companies that are present in the market, registering their company for GST is a very simple process.
- Elimination of the Cascading Effect
GST in Malaysia has discarded the cascading effect of all the indirect taxes which were earlier there in the country. GST is a combination of all the indirect taxes which was levied on the common public, so it serves as bucket which contains all the indirect taxes in it.
The ‘cascading effect’ means a tax on tax. Let us illustrate this through an example:
Let’s say that a consumer has taken a service for company formation in Malaysia for MYR 60,000, paying 15% service tax (i.e. 60,000*15% = 9,000). He then purchases furniture and other assets for his office for MYR 30,000, paying 5% sales tax (i.e. 30,000*5% = 1,500). His total outflow of tax would be 9,000+1,500 = 10,500. He paid MYR 9,000 as service tax without getting any deduction of MYR 1,500 paid as sales tax.
- Increasing the Threshold Limit for Registration
In the previous tax structure, the companies that had a turnover over 5 lakhs were liable to pay tax. But under GST regime, this limit was extended to 20 lakhs, which served as a relief to many small businessmen and also for the foreign people who are planning to set up a company in Malaysia.
- No Hidden Taxes
GST consists of 2 taxes: Central Goods and Services Tax (CGST), and State Goods and Services Tax (SGST) – imposed on all the manufacturing goods and services which are offered in the country. There will be no hidden taxes other than CGST and SGST which can be charged for the goods and services.
- Discarding of Unnecessary Tax Rates
The most beneficial factor gained from the implementation of GST in Malaysia was the discarding of all the unnecessary tax rates which were prevailing in the economy, like value added tax (VAT), octroi, central sales tax, state sales tax, entry tax, and others. All these taxes were no longer in the picture, and were brought under the umbrella of GST.
- Favorable towards Businesses
GST in Malaysia has been favorable towards the business people in the country. As the cost of goods reduces, consumption rate increases, which benefits companies. So if you are planning on setting up a company in Malaysia, it’s a fairly lucrative time.
- The Tax Burden on SMEs
Earlier, manufacturing companies who had a turnover of less than 1.5 crores were exempted from paying the excise tax on their goods. But after GST, this limit for all the companies was brought down to 20 lakhs, a big burden for all the manufacturing companies.
- Online Payment System
GST registration in Malaysia is not the only process which was made online; even the payment of the GST tax has been made online – which makes it unfamiliar for the small businesses to comply, unlike the old days, wherein the process of tax filing was done offline.
- Great Impact on the Real Estate
GST added 8% to the then rate of new houses. This led to a decline in the demand for new homes in Malaysia.
GST in Malaysia might be a benefit or a burden to many Malaysians. GST in Malaysia is an ugly truth because the prices of consumer goods and services will increase in short-term as well as in long-term, which might reduce consumer spending in the country. But the economy of Malaysia has never been better. The populace has been spending more on goods and services, which has proven favorable for the government coffers.