Taxation Gst

1. Introduction

The concept behind Goods & Services Tax (GST) was invented by a French tax official in the 1950s. In some countries it is known as Value-Added Tax (VAT). Today, more than 160 nations, including the European Union and Asian countries such as Sri Lanka, Singapore and China practice this form of taxation. Roughly 90 percent of the world's population live in countries with VAT or GST (GST Malaysia, 2014).

In Malaysia, on the 25th of October 2013, the Prime Minister Datuk Seri Najib Razak announced the introduction of the GST in Budget 2014 to replace the current Sales and Services tax (SST), GST will be effective on April, 2015 (Liew, 2013). GST in Malaysia is proposed to replace the current consumption tax SST. Its introduction is part of the Government's tax reform program (GST Malaysia, 2014).

GST vs. SST

GST is a multi-stage consumption tax on goods and services whereby each point of supply in a production chain is potentially taxable up to the retail stage of distribution. At the same time suppliers are entitled to refunds of GST incurred on business inputs. The basic fundamental of GST Malaysia is its self-policing features which allow the businesses to claim their Input tax credit by way of automatic deduction in their accounting system (Valadkhani, 2013). Whereas SST is a single stage of consumption tax compare to GST. Under SST, goods from factory will be charge sales tax of 10% unless it is for export. Dinning in high class restaurant will be charge Services Tax of 6%. It is one stage tax and business cannot claim back tax on item purchase. Thus, factory has to pay whole 10% to government and Services provider has to whole 6% to government (K.Saira, 2013). Under GST, businesses are able to claim back input tax credit, while SST system is not allowed business to recover tax paid on their purchases and it’s treated as a cost to the business. SST is paid early in the supply chain, by the time the consumer pays the final price of the goods,...