ARE GOVT, RAKYAT ON THE LOSING END?
ABOLISHING the Goods and Services Tax (GST) is one of the many promises made by the new government. While the intention for such a move is to ease the financial burden of the rakyat, it is questionable whether the noble intention can be translated into reality.
One of the arguments put forth is that the Sales and Services Tax (SST)’s scope is much smaller compared with GST. GST is imposed on supply, which covers most of the financial transactions between two parties. On the other hand, SST is imposed on goods and selected services. Payment of rental, for example, is considered supply, thus is subjected to GST. Under SST, it is considered neither goods nor taxable service, thus is not subjected to SST. This explains why the government’s collection under SST is lower than GST.
However, does it mean that if the scope of SST is small, and the government’s collection is lower under SST than GST, the prices of goods and services will decrease? In other words, will the sacrifice made by the government in terms of reduction in revenue be favourably returned by easing the financial burden of the rakyat? Unfortunately, the equation is not that simple and straightforward. Businesses will dictate the end result.
As a general principle, GST is not part of the cost to a business. This is because the businesses are able to claim most of the GST paid to their suppliers. Under the GST legislation, the amount of GST paid to the supplier will be offset against the amount of GST collected from the customers. The difference will either be remitted to the Customs Department or refunded to the business. However, if a business is treated as an exempt supplier or when a business is not registered with the Customs Department, GST becomes a cost to that business. In short, GST is not a cost to most businesses.
SST, on the other hand, is a tax that is levied on manufacturers, importers or selected service providers only. There is no mechanism for claims under the SST regime. Hence, the amount of SST imposed on the manufacturer, importer or service provider will be part of the cost to the other businesses. The tax amount will be embedded and compounded in the prices of goods as the goods travel across the supply chain. In short, SST is a cost to businesses. However, since the scope of SST is smaller, this affects only certain types of goods.
Unfortunately, when GST was introduced in April 2016 to replace SST, prices of most goods and services increased. Why did this happen? The answer is simple — almost all businesses, either intentionally or unintentionally, treated GST as their cost. In addition, many businesses took the opportunity to raise prices despite knowing the real mechanism of GST.
So, what will happen when the government introduces SST in September? Will the history of April 2016 repeat?
The government enforcement agencies, such as the Domestic Trade and Consumer Affairs Ministry and the Customs Department must monitor businesses so that none take the opportunity to raise the prices of goods unnecessarily.
The problem is that the SST regime does not facilitate access for the enforcement bodies to scrutinise the businesses. Unlike GST, SST is paid only by manufacturers, importers or selected service providers.
The Customs Department, therefore, will only have the information, particularly on costs, for these businesses. Gathering evidence to charge other businesses along the supply chain under the Price Control and AntiProfiteering Act 2011 will not be easy under the GST regime.
So, will the government and the rakyat lose out with SST? The government will collect less money from SST compared to GST, but the rakyat will still pay the same or even more for goods and services.
I hope this will not be the end result, where the rakyat ends up paying the same price.
Which one do we as the rakyat want? Do we want our money to go back to the government so that it will build hospitals and provide better education? Or do we want our money to make selected businesses richer?
Since the new government aims to be transparent and responsible, I think the rakyat will tolerate it if the money paid to the government is used effectively to benefit the rakyat.
It is not too late for the government to rethink whether it wants to proceed with SST or refine the GST law. Perhaps, the new government and the rakyat should ponder on this.
Associate professor, Department of Accounting, Faculty of Business and Accountancy, Universiti Malaya