Thursday, September 13, 2007

Since Lulu Opened Up A Discussion on GST

so, Lulu should share with you all how the industry suspects GST will be implemented.

Actually, no one knows as the government
a. has been tight lipped about it
b. is still totally clueless about it
If you ask your friends in the accounting houses, they'd probably tell you that in the early days, they were invited for some consultations where some of the paling basic, dungu-est questions were asked. And the pace practically went to zero after the postponment was announced.
btw, Lulu did hear just recently that a delegation went to NZ to study their system, you know, one of those "Lawatan Sambil Belajar" things.
This is how the industry guesses the calculations and payment will be done.

for example, if today, you pay RM1.00 for a can of cola from your local grocer, when GST is implemented, [assuming gst is 5%], you would be paying RM1.00+RM0.05 to the local grocer.
but before the local grocer had sold the can to you, a series of events had happened in the chain supply.
We'll start with what happens at the cola factory.

ColaFactory would have paid their supplier RM0.525 for the raw material to make that drink. Out of that RM0.525, RM0.50 went to the supplier, and the other RM0.025 the supplier has to pay the government for GST.
The raw goods are processed and made into a can of coke. ColaFactory does their costing, taking into account the material cost, the labour, expenses and profit, marks it up to RM0.85 to sell to your local grocer. ColaFactory would invoice the grocer at RM0.8925 [=RM0.85+RM0.0425] and that is the amount your grocer would pay ColaFactory. ColaFactory, just like their supplier pockets the RM0.85, and pays the government RM0.0425-RM0.025 = RM0.0175.

The GST will be incurred at every level of the chain.
the amount paid by the each level is paid back to them via the invoice to the next guy on the chain, and ultimately, paid by you the consumer.
Yup! You're the one who's actually paying for the RM0.025+RM0.0175+RM0.0075 even though it was collected at every level.
Why every level? It is believed that the government wants to ensure minimal escapees.

Some comments mentioned sales tax. It is believed that the sales tax will be abolished then.

As Lulu mentioned earlier, no one really knows. We will have to wait for the elections to be over to know for sure.

GST - everybody gets to pay!


Anonymous said...

The main stumbling block to the GST or VAT is it will not be electorally popular. It is a consumption-based tax, and everybody who consumes will have to pay it.

If you look at the income tax tables right now, with the allowed deductions, you would realise that in terms of absolute headcount, a lot of people need to pay little or no income tax at all.

With GST , everybody will have to pay, based on their consumption.

Hopefully it comes with a reduction in the income tax rate, otherwise Malaysia would be a very high taxation country indeed - pay heavy income tax, then pay again whenever you buy anything.

That would be a major disincentive to consumer consumption, affecting the rest of the economy.

denzook said...

i thought you're a lulu, how come you know more on this.

actually the government pocketed (0.025+0.0425+0.05=0.1175) and not 0.05 instead, i think. the colafactory put up price to grocery 0.8925, not 0.8675 if to follow the table calculation. There will be double or triple counting in this case.

anyway IMHO, based on the cola story you brought, supplier and grocery usually try to pass the gst end-customer. Assuming final cola price without gst is $1.00 and grocery net 0.15 and colafactory 0.35. With 5% gst, and if colafactory insists 0.35 profit and grocery 0.15, colafactory will put up price to grocery 0.91875 and, grocery later 1.122188. End customer end up paying extra 0.12 for these chain supply, not simple .05.

What A Lulu said...

gst is meant paid by the consumer.
what is happening is, instead of waiting to collect at the end when the consumer makes the purchase, the govt collects at every part of the chain.

govt collects from
raw supplier RM0.025
manufacturer RM0.0175
retailer RM0.0075

bear in mind that everyone collects from the next person in the chain, ie
retailer collects RM0.05 from the consumer, pays govt RM0.0075, and that balance RM0.425 was used to cover for the GST invoiced by the manufacturer.

It's 5sen, not 12sen

denzook said...

Lulu, I don't understand, with GST 5%, I don't expect grocery will simply tag the price at 1.05 to customer (incl GST) and absorb gst and make itself poorer. The supplier and grocery will try to pass the buck to customer just like oil hike, unless government says no, but who cares if it's not control items. All gst in the chains will be bear by end-customer instead.

You're correct gov collects at every part of chain, but what I don't see is when colafactory credits 0.8925 to grocery, the 0.0425 goes to gov, but at the same time supplier credits 0.5250 to colafactory. Isn't it that become 0.425+0.025 instead just 0.0425 ?

it's getting confused and more confused.

What A Lulu said...

:) go sleep on it.
tomorow, draw up the table on a piece of paper. maybe it'll make more sense then.

remember, the people in the supply chain are paying first, but they collect from the next in the chain.
the real payer, the consumer, is the real and ultimate payer.

denzook said...

oh, i get it, the government will look into sales minus purchase to make 5% of the final goods price. My assumption is 5% for every transaction. Wait a minute, if government to implement malaysian GST with 5% every transaction, that will be most creative making money!

Anonymous said...

What you're talking about is the cascading effect. Most governments that have implemented GST laws have ways around it (such as an input tax credit).

(Input tax credits can be abused, of course.)

Also, flat GST rebates are issued to people who don't pay taxes if they file their income taxes. (yes, everybody has to learn how to file income taxes). Other kinds of handouts (e.g. childcare benefits etc.) are also done through tax returns, so there are other incentives to file tax returns.

Most food items and essentials are tax-exempt.

That said, I don't know how well it will work in Malaysia, because:
1) The majority of the population aren't really savvy enough to file their own taxes. If this were implemented, the government would have to open up tax clinics to help people file their taxes (especially those in the rural areas).
2) The majority of the population currently don't pay any taxes, so they don't file their tax returns. If they had to do it just to claim a GST rebate, it will create a lot of paperwork for nothing.
3) The Malaysian government isn't known for giving money back to the people, so this might all be quite moot.
4) The Malaysian government will try to milk as much money out of the public as they can get away with.

There are many good reasons for imposing a GST (most first world nations have done it). It's only a matter of time before Malaysia has to do it.

Unfortunately I don't trust the Malaysian government to implement GST laws correctly.