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Thursday, December 31, 2009

Keep info flowing on how the GST works

I REFER to Dr A. Soorian’s letter “We may not be ready for GST” (Sunday Star, Dec 27). While I share some of the concerns highlighted by Dr Soorian, I think there are a couple of points that may not be factually correct.

First, it is not correct to state that Singa­pore’s GST is only 3%. The last I checked, it is 7%. But having said that, I am not implying at all that the 4% GST proposed by Malaysia is low or reasonable by comparison. Direct comparison of GST rates between two different countries is risky unless we also take into account differences in direct taxes, the exemptions available and other subsidies provided by the Government.

The second point is regarding the “cascading impact” of 4% GST on consumers.

Dr Soorian has mentioned the total impact of 16% from manufacturer, agent, wholesaler to retailer with each levying 4% GST. I think this is not accurate and unless corrected, it may give rise to unnecessary anxiety among consumers.

The GST is like value-added tax (VAT). The tax imposed at each stage of the process is only on the “value added” at that stage.

A simple illustration would probably help in our understanding: When a wheat farmer sells the wheat (say worth RM100mil) to the flour manufacturer, a 4% VAT is imposed on the value of wheat. When the flour manufacturer converts the wheat into flour (now the flour is worth RM120mil), the 4% VAT imposed is not on the whole value of the flour, but only on the value added, i.e. the 4% VAT is imposed only on the difference in value between the wheat and the flour (RM20mil).

Similarly, when the flour is made into roti canai, the 4% GST is imposed only on the value added by the roti canai maker. That is the GST as I understand it.

Be that as it may, I think it is important for the Treasury to come up with articles and newsletters providing information and explanations whenever there are opinions and views expressed on the proposed GST.

Keeping silent and allowing ambiguity to fester is not a good way forward.

In addition to some of the concerns highlighted by Dr Soorian, my issue with the GST implementation is the availability of proper invoicing, recording and accounting information at each stage of the GST computation.

Given Malaysia’s present stage of development and the way we generally record our business transactions, I think it is likely to be messy, chaotic and prone to leakages.

Sometimes I wonder if it is worthwhile to impose so much cost, time and work on so many people just to collect some additional revenue when there are probably other alternatives available.

T.K. Chua,

Kuala Lumpur.

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