GST is the best tax system around, says expert

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In Malaysia, GST will be implemented beginning April 1st 2015 at a rate of 6%, making it one of the lowest rates in the world. The GST will replace the current consumption tax, which comprises sales tax (at a rate of 5% or 10%) and service tax (at a rate of 6%).

An expert from the tax authority in the United Kingdom believes that the implementation of goods and services tax (or GST) will benefit the government and public. Speaking on the sidelines of “Malaysia’s Goods and Services Tax (GST): Possible Lessons from the United Kingdom and Singapore”, a recent national forum organised by the Institute of Strategic and International Studies (ISIS) Malaysia, the UK’s HM Revenue & Customs (HRMC) senior VAT policy manager Andrew Webb noted that GST was a good form of increasing government revenue.

“I would say as a professional person and taxpayer, is that it (the GST) is probably the best tax system around. The evidence to support that is though it began in Europe, why is it that 158 countries around the world introduced it as a tax system if it was seriously flawed or wrong? If it was a poor tax system, people wouldn’t have supported that,” he said.

Webb (pic) suggested that Malaysia keep the tax structure as simple as possible. “Keep the tax as simple as you can, you don’t have too many rates or exemptions because it corrupts the system. If you want to help the people, you find other ways of helping people the way Singapore has done. You also find ways of engaging the taxpayers and business community. It’s very important. You need to have conversation with the businesses so the tax authority understands the issues of the business side and the businesses understand issues of the tax authority. We spend quite a considerable amount of effort talking to individual taxpayers and taxpayer organisations so that there is a trust and understanding between the two.”

He highlighted that in the UK, when it comes to legislation, the government publishes it when it is a draft law and after a period of consultation with the public, the law is passed. “Any tax system that has to work relies on society as a whole and business community being broadly in favour of it,” he added.

He also stressed on compliance of the GST. “What I accept (as a taxpayer) is a contract. If I pay tax, I get benefits such as healthcare and education. If nobody pays tax, everything collapses. So I accept that contract, most good businesses also accept that contract,” he said.

Earlier, during his presentation, Webb explained that in the UK, there are multiple rates for its version of the GST, called value added tax (VAT). The standard VAT rate of 20% applies to most goods and services, while the reduced VAT rate applies to expenses such as domestic fuel and power, installation of energy-saving products and children’s car seats. The zero VAT rate applies to items such as food, books and newspapers, children’s clothes and shoes and public transport. Exemptions from the VAT applies to social benefits or difficult-to-tax supplies such as health, education, financial services and transport.

“VAT is a major tax for the UK and its importance continues to grow. It provides the government with a stable and reliable source of revenue,” he emphasised during his presentation. He shared that the 2012/2013 VAT revenue was £101 billion, making up 21% of total tax receipts. The UK has had sales tax for over 30 years. It introduced the VAT when joining the European Union (EU) in 1973, as it was a condition of EU membership.

In Malaysia, GST will be implemented beginning April 1st 2015 at a rate of 6%, making it one of the lowest rates in the world. The GST will replace the current consumption tax, which comprises sales tax (at a rate of 5% or 10%) and service tax (at a rate of 6%).

Monday:  If implemented correctly, how GST will benefit the poor.

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