INTRODUCTION

In todays global world, there is so many inventions created by the diligent and brilliant young
people as the world develops from day to day. Age globalization has become part of every
countrys structure and having a country isolated in a whole from the rest of the world is
extremely rare and is slowly being wiped out by competitive pressure. By these, international
exchanges of technology, economy, culture, and politics which has increased over the past
few years due to ease of communication and transportation with the introduction of new
technology that allows populations world-wide to do so .These worlds growth do give a huge
impact in worlds economics, so do Malaysia. Accordingly, Malaysian government had
purposed several steps in order to bring Malaysia on par with the other neighbourhood
countries such as singapore. Large amount of money needed in order to operate and
organize all the projects and events planned by the government and non-government
societies. Besides, even general schools needed money to enhance all the facilities and
educational system that results in the students performances towards their study.

Like the other country, tax payment also contributed a lot in rising the income
for Malaysia. There is also other sources of incomes for particular country, such as fines by
the authority to the people who break the laws. There are many types of the tax available
and been applied in our country such as personal income tax, corporate income tax, real
property gains tax, sales tax, withholding tax, and indirect taxes. However, there are also
some taxes that do not been practiced in Malaysia till today that is estate duties,
accumulated earnings tax, annual wealth taxes or federal taxes. This is because, Malaysia
itself do not reach the level that can be compared to these metropolitan countries such
Canada, America, United Kingdom , and Russia. Malaysia is in his way to becomes one of
these countries soon.

Instead of these taxes charged to the Malaysia citizens, business related to

goods and services also have its own tax rate charged to the consumers and buyers which
is sales tax. Based on Malaysia budget for 2005, they had purposed to the government to
rearranged the taxation system in Malaysia in order to improve the efficiency of the
government management in taxation. They have a faith in this issue as they are hoping that
by the changes, they can improve the taxation system in Malaysia as well as increase the
country income. One of the methods purposed by them is by introducing the new tax and
replaces the taxes that have come into existence since past few decades. The new tax is so
called Goods and Services Tax or more commonly known as GST. This GST is claimed to
replace the Sales Tax and Services Tax.
What is Goods and Service Tax (GST)?

As we know before, GST is going to replace the existence of the sales tax and services tax
on the Malaysia 2005 budget. GST is also known as VAT that is stand for value added tax in
some other countries. They got only different in name but basically, it is theoretically same.
In China, Portugal, and UK, they used to call this tax as VAT. GST is a multi-stage
consumption tax on goods and services that been levied and charged to the buyer and
consumers.

GST is a multi stage tax while sales tax is a one go tax. With GST, you wont
have cascading effect meaning you wont need to pay tax which are not relevant.GST is a
consumption tax to be implemented on some merchandise, a wide range of domestic &
international products, goods and services. This tax is applied on every level of product, from
raw materials all the way to completed finished products. It charged almost all level of
business from importers till consumers. Even the GST is applied all the way from supplier up
to retailer stage, the rate paid does not become part of the cost of the goods since the tax
paid is claimable. So, it does not matter how many stages the merchandise has to go
through from importer till consumer or buyer because the tax collected at each previous
stage is always deducted at the next stage in the business. Just now, we do stated that the
tax paid is claimable, but how? Specifically, any GST paid by the registered person or
company will be reclaimed from government at the end of every monthly accounting period.

This GST is only can be charged by the registered company or business.

There are several term and condition that a business need to hold before registered their
company for the GST. GST can only to be levied and charged if the business is registered
under GST. A business is not liable to be registered if its annual turnover of taxable supplies
does not reach the prescribed threshold. Therefore, such businesses cannot charge
and collect GST on the supply of goods and services made to their customers. Nevertheless,
businesses can apply to be registered voluntarily. The main condition that need to fulfill is
by make sure that the business must amounts to RM 500,000 per year must register to
charge GST. However, for business lesser then 500,000, they can volunteer themselves to
charge GST and claim input tax credit. If the business is not registered to the legal authority ,
the retailer must not collect GST from the consumer. The price of the goods sold is based on
the rate of tax levies from the supplier to the retailer. The responsibility of the payment due to
the value of tax charged is on the seller, not the consumers or the buyers because they
already added the amount of the tax to the goods that they sold.
 Normally, the GST rate applied in other country is at 10% on most goods and
services.. In Malaysia , the normal common rate been charged to the goods and services
provided is based on the authority decision. How many percent changes is all depend to
them. On 2007, the first trial for this GST, the authority stated that the GST rate is 4%. As it is
only 4%, while the current sales tax and services tax is much more larger than this. So there
is no significant However, in this current year, the GST do not been charged because there
are several problems crisis rise that related to the management and economy status in
Malaysia. The chart below is the path how the GST work based on rate of GST is 10 %:

Figure 1: The flow of GST levies

In this example, importer sold the good at RM 10 and add GST as much as
RM 1, the RM 1 that been paid to the authority. The wholesaler was charged RM3 and the
amount of tax paid to authority is RM3-RM1=RM2. After that, the retailer paid GST RM3 to
the wholesaler and the goods sold at price RM 4 including the GST. Do you notice that the
value of GST paid at all the way from importer to retailer is RM4 and that cost is exactly the
same as consumers paid. in Malaysia, with GST rate of 4%, it a bit different in amount paid
by the other country. So, for Malaysi, it also can be illustrate by the above table:
 Table 1: Computation of GST at all levels of the supply chain for standard rated supply

Sales price Payment paid to the

Level of supply
(followed by 4% GST) Government
Sales price =RM50.00 GST collection =RM 2.00
Raw material
GST =RM 2.00 Less: GST paid =RM 0.00
suppliers
Total sales price =RM52.00 GST payable =RM 2.00
Sales price =RM100.00 GST collection =RM 4.00
Manufacturer GST =RM 4.00 Less: GST paid =RM 2.00
Total sales price =RM104.00 GST payable =RM 2.00
Sales price =RM125.00 GST collection =RM 5.00
Wholesaler GST =RM 5.00 Less: GST paid =RM 4.00
Total sales price =RM104.00 GST payable =RM 1.00
Sales price =RM156.00 GST collection =RM 6.24
Retailer GST =RM 6.24 Less: GST paid =RM 4.80
Total sales price =RM162.24 GST payable =RM 1.44

Types of Supply

In the other hand, not all goods sold and services provide in market applied
the GST for every transaction. All these merchandise, goods and services can be classified
into 4 types of supply. That is standard-rated supplies, zero-rated supplies, exempt supplies
and supplies not within the scope of GST. We will discuss each of this subtopic later.The
most common one is standard-rated supplies. It can be defined as taxable supplies of goods
and services with GST rate of 4%. A taxable person who had registered his company under
GST has to collect the GST on the supply and is eligible to claim the tax credit in his
business. Goods and services for this type is the one that do not included in zero-rated
goods and services, and exempt goods and services.

Other than that, zero-rated supplies are taxable supplies of goods and
services where the GST rate is at 0%. In this case, the business do not collect the GST on
their supplies but are entitled to claim credit on inputs used in the course or furtherance of
the business. There are about 20 types of goods that had been categories under this portion
including foodstuff , meats , fish and fillets , any goods exported out via ports and airports to
other country outside Malaysia, supply of water, export of services, telecommunication
services. As we noticed above, all the essential food stuffs is zero-rated because the
government tried to lighten the burden for the poor people and lower income group. Foods
are the basic needing in order to survive and as we know, a nation do need a large group of
people or citizen so that all the activities that purposely for development or not can be done
successfully. Besides, this is also one of the alternative ways taken by the government to
enhance Malaysia market competitiveness and to reduce the cost that available in operating
a business and increase the profit gain. The other reason is because Malaysia is trying to
retain the status of duty free in some areas such as Labuan, Pulau Langkawi and Tioman
and indirectly embellish the tourism industry and attract the foreigner to visit Malaysia.
Basically, the zero-rate supplies is aiming in stimulating economic growth and lower the
inflationary effect.

Exempt supply is a supply of goods and services which are not subjected to
GST. By this, the business does not collect any GST on their goods and services and not
entitled to claim credit on his business input. Some activities that summaries under the
exempt supplies are financial service which includes the interest income, return on
investment, and life premium for personal and family members. Next is domestic passenger
transportation. In Malaysia, the transportation service available are public transportation by
rail(KTM,LRT,ERL), ships ,boats ,ferries, buses ,taxi and hired car, and also toll highway.
Healthcare and related services provided by private hospital and clinics also one of the
exceptions on GST. In education sector, all the services provided also do not been charged
by the GST. The difficulty in taxing certain services especially related to the financial service
is the reason why financial services do not been charged by GST. Supplies not within the
scope of GST is the supplies which do not fall within the charging provision of the GST Act
include non-business transactions, sale of goods from a place outside Malaysia to another
place outside Malaysia as well as services provided by the Government sector.