Appendix I

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF ENGINEERING & SCIENCE (FES)
ACADEMIC YEAR 2014/2015
OCTOBER 2014 TRIMESTER
BACHELOR OF SCIENCE (HONS) ACTURIAL SCIENCE
YEAR 2 TRIMESTER 3
YEAR 1 TRIMESTER 3
GROUP ASSIGNMENT REPORT COVER SHEET
Course Details
Subject Code

: UKEA1033

Subject Title

: Macroeconomics I

Tutorial Group: T3
Lecturer and Tutors Name

: Puan.Farida Bhanu binti Mohamed Yousoof

Assignment Details
Title of Assignment

: Consumption Tax (GST)

Due Date

: Week 5, by 3pm

Important Note

: Submission of assignments is the responsibility of the students.

Students Details
Name
ERIC CHAN WEN JUN
LAU LYN YUAN
SEE SIAU HOONG
SIT SIONG FOONG
TANG ZHI HUI

Student ID No.
1300868
1300423
1400121
1400580
1300818

Assignment Overall Marks : ____________________ marks

Appendix II

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF ENGINEERING AND SCIENCE (FES)
ACADEMIC YEAR 2014/2015
OCTOBER 2014 TRIMESTER
BACHELOR OF SCIENCE (HONS) ACTURIAL SCIENCE
YEAR 2 TRIMESTER 3
YEAR 1 TRIMESTER 3
Group Assignment Marking Scheme
UKEA 1033 Microeconomics 1
No.
1

Guideline Criteria
Background/Introduction

Grading
5 marks

Discussion, Argument & Analysis of content

15 marks

3.

Conclusion

5 marks

5.

Quality of report
Layout, flow of report, grammar and references

5 marks

6.

Presentation
Total Marks

Comments

Marks Awarded

10 marks
40 marks

:
________________________________________________________________________
________________________________________________________________________

Markers Signature :

__________________________

Markers name : __________________________

Date :
___________________________

TABLE OF CONTENT

No
.
1.

Contents
INTRODUCTION

2.

DISCUSSION AND ANALYSIS:-

Page
1-2

GST Model

3-5

Why GST?

5-6

Impact on GST implementation

6-9

3.

CONCLUSION

10

4.

REFERENCES

11-12

INTRODUCTION
Consumption tax, or Goods and Services Tax (GST), a type of Value Added Tax (VAT), is
new taxation system in Malaysia. It was first proposed and introduced since 1988. It is
expected to replace Sales and Service Tax (SST) from 1 st April 2015. GST is charged on
goods and services that are supplied in Malaysia and imports with a standard rate at 6%. All
businesses that has an annual turnover of RM 500,000 or more will have to register for GST
with Royal Malaysian Customs Department (RMCD). However, businesses with revenue
below RM 500,000, registration for GST is optional. The most significant changes of this
new taxation system is that each stage of transaction up to retail stage of distribution has to be
recorded and reported every accounting period.
The beginning of GST can be dated back to 30 years ago.
Development of GST:1983 A research team was sent to South Korea to study the potential of GST in
implementing a more sustainable and broad-based consumption tax system.
1988 The former Minister of Finance, Tun Daim Zainuddin informed the public that
the government was considering implementing the GST.
1992 The former Minister of Finance, Dato Seri Anwar Ibrahim announced GST for
the 1993 Malaysian financial budget. However, it was later deferred.
2004 Dato Seri Abdullah bin Ahmad Badawi, the 5 th Prime Minister announced GST
for the 2005 Malaysian budget which would have come into effect by 1 st January
2007. It was then deferred in 2006 to give time for businesses to adapt to
changes in processes and training of personnel.
2005 Malaysia sent again a team to visit nations such as Australia and New Zealand
to further study the mechanics of GST.
2009 GST Tax Bill was tabled for reading at the Dewan Rakyat as a step to developing a
more effective, efficient and sustainable taxation system. It was deferred to ensure
laws and regulations relating to the implementation are all in place and the citizens
will be engaged inclusively.
2013 Our current Prime Minister, Dato Seri Najib Razak declared GST of 6% in our
beloved country. It will commence from 1st April 2015.
1

For additional information, GST is not new. GST was invented in the 50s by a French tax
official. It was then followed by more than 160 nations worldwide.
The tax rates are varies among countries around the world. The table below shows some of
the examples.

DISCUSSION AND ANALYSIS

GST Model
Goods and Services Tax is split into 3 types:1) Standard Rated
2) Zero Rated
3) Exempted

1) Standard Rated
Under the type of standard rated, every products (goods and services) are charged at a 6%
rate. GST is applied to every side of the supply chain, from supplier to manufacturer, from
manufacturer to retailer and lastly to customers. However, input tax is claimable, which
means GST will only charge on final goods in the end.
Example under standard rated supply:
BUSINESS

SALES

TAX ON

TAX ON

NET TAX

ENTITY

(RM)

OUTPUT (RM)

INPUT (RM)

PAID (RM)

SUPPLIER

10.00

0.60

0.6

MANUFACTURER

50.00

3.00

0.60

2.40

WHOLESALER

70.00

4.20

3.00

1.20

RETAILER

100.00

6.00

4.20

1.80

GST COLLECTED BY GOVERNMENT

6.00

Supplier supplies raw material such as iron, woods, coal etc. to manufacturer. If the sales
price of the raw material is RM10.00, RM0.60 will be add in as GST (6%) and the
manufacturer ends up paying RM10.60. However, this does not bring up the production cost
as the 60sen is the input tax when the raw material is used to produce other products such as
food, phones etc. Input tax is claimable from the government every tax period. The 60sen
received by supplier will be collected by the government every tax period. When RM50.00
worth manufactured goods is sold to wholesaler, the wholesaler will have to pay RM53.00
with RM3.00 tax (6% of RM50.00). The same mechanism applied, RM3.00 as input tax is
claimable and 6% of tax will be added onto the sales price. This process stops when it comes
to the stage of consumers. When goods are sold to consumers, no input tax can be claimable
3

as goods are purchased to consume not to produce. Since tax is collected by government and
input tax can be claimed from government, consumers will be the only party paying the GST
tax.
2) Zero Rated
Most of goods and services are under standard rated (6% GST), there is some goods or
products that is under zero rated (0% GST). Input tax is claimable under zero rated supply.
Examples under zero rated supply are vegetables, living animals, rice, white and whole meal
bread, reading material, newspaper etc.
Example under zero rated supply:
BUSINESS

SALES

TAX ON

TAX ON

NET TAX

ENTITY

(RM)

OUTPUT (RM)

INPUT (RM)

PAID (RM)

SUPPLIER

10.00

0.60

0.6

MANUFACTURER

50.00

3.00

0.60

2.40

WHOLESALER

70.00

4.20

3.00

1.20

RETAILER

100.00

4.20

-4.2

GST COLLECTED BY GOVERNMENT

The same mechanism from standard rated supply applies here for the first few stages.
Supplier supplies material to manufacturer with extra 6% tax charges and the same goes to
manufacturer, wholesaler and retailer when they buy goods for business purposes. The input
tax along the supply chain is claimable. However, 0% of tax rate is charged to consumer
instead of 6%. As a result, RM 0 net tax is collected by the government.
3) Exempted
Goods and services under exempted category have no GST. However, input tax is not
claimable. Examples of exempted products are residential property, public transportation,
private education and healthcare, financial services etc.

Example under Exempted supply:

4

BUSINESS

SALES

TAX ON

TAX ON INPUT

NET TAX

ENTITY

(RM)

OUTPUT (RM)

(RM)

PAID (RM)

SUPPLIER

100.00

6.00

6.00 (6.00 - 0)

PRIVATE

150.00

6.00 (un-

0 (0 - 0)

HOSPITAL
claimable)
GST COLLECTED BY GOVERNMENT

6.00

For instance, when supplier supplies medicines to private healthcare, standard rate of 6%
GST is charged. However, the tax on input for the hospital is not claimable. Under exempted
category, services and medicine provide by private hospital cannot impose any tax on its
customer. The services or goods producer have to take up all the cost by itself.
4) Out of scope
Even though majority of the goods and services have imposed GST, there are few products
are not subjected to GST. Services or goods that are out of the scope of GST do not levied by
any taxes.
List of out of scope supplies
1)
2)
3)
4)

Cash donation
Compensation or liquidated damages
Dividend, loan repayments etc.
Contribution to pension, provident or social security fund

Why GST?
Efficiency on collecting taxes:Instead of using hands and paper works, checking through receipts and invoices, GST has a
fully computerized system. The new software system of GST allows dating and pairing
invoices by referring to the reference number in just few seconds. The new system also
avoids human errors and as well as any intentional human fraud. With this new system, lesser
work force is needed and with basics computer knowledge, everyone could run the software.
Besides, GST is using a new concept, taxes are levied on every stage of the supply
chain (Mentioned at page 3). Unlike the existing SST, tax only levied at only one stage of the
supply chain. With this new concept, taxes ultimately charged on the end of the supply chain,
the customers. This might seems all the burden are fall onto the customer but this makes
consumption tax actually goes to consumers instead of distributor, retailer etc.
5

GST has a new concept on time of supply. Under GST regime, supply is considered
taken place once an invoice is issued. This is different from the existing SST where tax only
levied when payment is made. With this new concept of multi-stages and time of supply, tax
evasion can be significantly reduced. Instead of reporting a lump sum amount to the custom,
business entity have to report every transaction with the present of issued invoices and
receipt.
Increasing Standard of Living:With the new consumption imposed, taxes are charged on a wider range. With a standard rate
of 6%, everyone has to pay the same fair rate on almost every goods and services are include
except specific otherwise. This largely increases the liquidity of government budget so that
government can spend more money on public sector like building more school, increase
healthcare funding, improve infrastructure etc. As a result, standard of living will be
improved.
On a few sectors, GST will be replacing some of the double taxation under SST. In
some of the food and services sectors like Nandos and Secret Recipe, they are charging
customer at a tax rate of 16% (10% service tax + 6% government tax). With the implement of
GST, the price will be brought down significantly. As a result people can enjoy meal at a
lower price.
On the other hand, multi-stage concept and time of supply concept also increases
transparency of business entity. By going through every transaction, shareholders can easily
see how a company spends their money, investor investing with lower risk.
Besides, with the reverse charge of GST, tax will be levied on imports at standard
rate. While exports will no longer subject to taxes. This will bring the net export (X-IM) up
and hence growth in GDP. With lesser imports, outflow of Malaysia currency will be reduced
and as a result current account can be improved.
Impact on GST implementation
Just as ripples spread out when a single pebble is dropped into water, the implementation of
Goods and Service Tax (GST) can bring far-reaching effects to an individual, community or
country. According to Narayan Ramachandran (2014), GST is described as a small reform
with potentially the biggest impact and implementing GST will be one small step for the
legislature but a giant step for the benefit of the country. However, on 8 October 2014,
6

protesters gathered outside the Parliament to demand the government to scrap GST as it will
burden the poor. Implementation of GST has brought both positive and negative impact to all
of us.
After the implementation of GST, it is expected to be one of the vital source to
increase the revenue stream. Our Prime Minister, Dato Seri Najib Razak (2014) mentioned
that GST is estimated to rake in RM23.2 billion in government revenue. This amount greatly
increases the revenue of Malaysia and can be stored as a backup which is helpful while
suffering in bad economic times. Datuk Seri Abdul Wahid Omar, Minister in the Prime
Minister's Department, (2014) said that, GST is capable of generating a more stable source
of revenue because it is less susceptible to economic fluctuations. Through execution of
GST, dependence on income tax and oil revenue will be much reduced which is a good news
as the income tax and oil revenue may be affected by inflation and other economic factors.
Besides, with the increasing revenue, fiscal deficit of Malaysia can be offset by restructuring
the existing tax system. The government expects the fiscal deficit to further decline to 3.5%
this year (Datuk Seri Abdul Wahid Omar, 2014).
In Australia, GST was implemented since year 2000 and had brought significance
improvement on the countrys revenue. All of the GST revenue received in each state in
Australia is collected distributed to each states and territories according to their own
budgetary priorities. Consequently, a secure, growing and broad-based revenue source is
formed. According to statistics (Australian Government, 2001 & 2013), the GST revenue in
Australia has increased from $27.4b to $53b. This shows an increase in GST revenue which
consequently increases the countrys income which is one of the impacts brought by the
implementation of GST.
Besides increasing countrys revenue, GST also affects the economics of a country.
Some people believe that it will have an extremely adverse effect on Malaysians and on the
economy. They claimed that the prices of goods will be risen leads to weak buying power in
our country. This situation not only burden the people but also causing economy to be
stagnant. As other countries introducing a GST have had to deal with a sudden sharp jump in
inflation, our country may also face this problem. However, Prime Minister Dato Seri Najib
Tun Razak (2014) assures that GST will not burden Malaysians as the Government will
implement the GST at a fixed rate of 6% to replace the present Sales and Services Tax at 16%
which actually reduce the tax burden. Prime Minister (2014) also explained that the GST
7

would spur the country's economic growth and to attain developed nation status. While GST
is exempted for exports, it will put Malaysia on an equal footing with other countries in terms
of export competitiveness, said Royal Malaysian Customs Department Director-General
Datuk Seri Khazali Ahmad (2014). Moreover, implementation of GST leads to reduction of
shadow economy (Datuk Siti Halimah Ismail, 2014). GST may cause a short-term minimal
impact to economy (UOB, 2014) but will bring benefits for our economy in a long term
prospect.
Our neighbour country, Singapore introduced GST as its new tax system since year
1994. Singapore's government decided to implement GST in order to shift from direct to
indirect taxes, to maintain its international competitiveness in attracting investments, and to
sustain its economic growth to create well-paying jobs for Singaporeans. GST brought good
impact on the economy of Singapore. On 1st January 2004, the GST rate in Singapore
increased from 4% to 5% and to 7% on 1st July 2007. Surprisingly, the stock market in GST
was only experiencing minimal effects and was growing well after the implementation.
Diagram of stock market in Singapore is shown below.

In addition, implementation of GST will affect our business sector, not just the big
companies but included the small and medium enterprises (SMEs). The taxation system will
become simpler as it brings all indirect taxes to an end thus causing only minimal effect on
the payment and refund of tax. Furthermore, GST brings in uniformity and transparent in
collection system which greatly prevent occurrence of evasion of tax. SMEs will become
more cost-effective which is rendering them to be more competitive. Therefore, acceptance of
SMEs in the business world will increase considerably. A business-friendly environment will
be created for SMEs. However, there are businesses may take advantage of introduction of
GST as a reason to raise prices of goods and services indiscriminately. The Anti-Profiteering
8

Act has been tabled to enable enforcement against such illegal practices. Theoretically, the
multi-stage tax nature of the GST allows the Customs department to aggregate pricing
information far more accurately than they do currently. The implied monitoring of this should
serve as a deterrent to unscrupulous businesses.
Last but not least, heavy impacts are hitting on consumers through implementation of
GST. Although GST has decreased the tax burden for the consumers and is claimed to be
consumer-friendly, GST tax structure is regressive, thus, leading hardship for the low and
medium class people. The basic needs are exempted from GST and subsidiary will be given
to them. Unfortunately, it still affects the buying power of people. For instance, the price of
lands and properties is expected to be increased and is harmful to the new house buyers and
renters. The developers may not bill home buyers for GST, they could transfer the costs
implicitly via the sale price. We can see the case in Canada which introduced GST since year
1991.Throughout this 21 years, the Statistics Canada New House Price Index has increased
by almost 60% (Ontario Home Builders Association, 2012). In Ontario, a $100,000 price
increase on a new home from $350,000 to $450,000 results in $11,300 in additional taxes on
a consumer. This situation hitting badly to the house buyers especially those belongs to the
middle-income.
In conclusion, implementation of GST may be a boon or bane for Malaysia. The
experience and impacts brought to other countries should be studied in order to be wellprepared to face any problem incurred.

CONCLUSION

In conclusion, Goods and Service Tax (GST), a value added tax which was first proposed by
former Minister of Finance, Tun Daim Zainuddin in 1988 but it was delayed. However, in
government reading of the 2014 budget, Malaysian Prime Minister declared that GST of 6%
is to be implemented in Malaysia starting on April 1, 2015. It is classifies into three types,
namely standard rated, zero rated, and exempted. All goods and services categorised as
standard rated are subject to 6% tax, while zero rated items are subject to 0% and some are
exempted. As GST is a part of governments tax reform programmed, it replaces the present
sales and services tax which believes it can fix the leakages in the current consumption tax
collection and thus brings extra revenue to the government. This implementation of GST also
diversifies government taxation system which reduces the dependence on income tax and oil
revenue. Besides Malaysian government claimed that through the implementation of GST, the
cost of doing business will be reduced; it has greater transparency, more effective, and would
increase competitiveness in global market. These benefit not only big companies but small
and medium enterprises as well. However, there are minority of people oppose the
introduction of GST. This is due to they are afraid of the new taxation system will hike up the
prices of goods and services and burden the poor. Despite it may bring minor impact to
economy but in long term prospective, it generating more stable revenue to the nation and
increase economy growth.

REFERENCES
10

2001-02 Budget Paper No. 3. (2001). Retrieved November 2, 2014, from

http://www.budget.gov.au/2001-02/papers/bp3/html/appa.htm
General Guide. (2013, October 31). Retrieved November 8, 2014, from
http://gst.customs.gov.my/en/rg/Pages/rg_gg.aspx
How GST Will Impact Home Prices & The Property Market. (2014, July 8). Retrieved
November 3, 2014, from http://www.penangpropertytalk.com/2014/07/how-gst-willimpact-home-prices-the-property-market/
Isabelle, L. (2014, September 16). GST will lead to reduction in Malaysias
shadow economy.
The Star Online. Retrieved November 1, 2014, from
http://www.thestar.com.my/Business/BusinessNews/2014/09/16/GST-to-stabilisegovt-revenue/?style=biz
Iyer, P. (2013, July 31). How will the GST impact SMEs? Retrieved November 1, 2013, from
http://www.supportbiz.com/articles/finance-forum/how-will-gst-impact-smes.html
KJ. (2014, April 7). The Impact of Malaysia's GST Implementation: Comparing with
Singapore. - Juris Technologies. Retrieved November 2, 2014, from
http://juristech.net/juristech/impact-malaysias-gst-implementation-comparingsingapore/
Malaysia Equally Competitive With Other Countries With GST Implementation.

(2014, September 12). Retrieved November 2, 2014, from

http://www.iproperty.com.my/news/9208/malaysia-equally-competitive-with-other-

countries-with-gst-implementation

Melissa, C. (2014, October 8). Protesters descend on Parliament over GST, fuel price hike.
Malay Mail Online. Retrieved November 2, 2014, from
http://www.themalaymailonline.com/malaysia/article/protesters-descend-onparliament-over-gst-fuel-price-hike
The Malay Mail. (2014, October 30). Najib: Government expects RM23.2b revenue from
GST. Retrieved November 3, 2014, from

11

http://www.themalaymailonline.com/malaysia/article/najib-government-expectsrm23.2b-revenue-from-gst
Part 3: General Revenue Assistance. (2013). Retrieved November 2, 2014, from

http://www.budget.gov.au/2013-14/content/bp3/html/bp3_04_part_3.htm

Ramachandran, N. (2014, August 24). GST small reform, big impact. Retrieved November 3,
2014, from http://www.livemint.com/Opinion/3uuyN4nyBUqKOBi4BFMSFK/GSTsmall-reform-big-impact.html
Ruslan, A. (2014). GST Boon or bane for the Malaysian economy? Retrieved November 1,
2014, from http://www.businessinsider.my/gst-boon-or-bane-for-the-malaysianeconomy-2/#.VFXv4G9pms0
Tan K.W. (2014, July 9). How Will GST Affect Property Developers &
Buyers? - Bursa
Dvmmy. Retrieved November 8, 2014, from
http://klse.i3investor.com/blogs/kianweiaritcles/55701.jsp
The Star Online. (2014, September 4). GST could spur economy growth,
more stable
source of revenue. Retrieved November 2, 2014, from
http://www.thestar.com.my/Business/BusinessNews/2014/09/04/GST-ISINTEGRAL-COMPONENT-OF-STRATEGIC-FISCAL-TRANSFORMATIONPACKAGE-WAHID-OMAR/?style=biz
The Star Online. (2014, September 10). GST will not burden Malaysians, assures Najib.
Retrieved November 3, 2014, from
http://www.thestar.com.my/news/nation/2014/09/10/gst-no-burden-malaysians-najib/
UOB sees firm growth in Malaysia despite GST and interest rate concerns. (2014). Retrieved
November 3, 2014, from
https://www1.uob.com.my/about/news/2014/pressR_aug29_2014.html?keepThis=true
&TB_iframe=true&width=560&height=400/

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