ACKNOWLEDGEMENTS

Alhamdulillah, we managed to complete this Engineering Economy (JGB20502) case study

assignment on time. In performing our assignment, we had to take the help and guideline of
some respected persons, who deserve our greatest gratitude. The completion of this
assignment gives us much pleasure.
Special thanks to Mr Musa Muhammad Ali, our lecturer for this subject for giving us a good
guideline for this report throughout numerous consultations. We would also like to expand our
deepest gratitude to all those who have directly and indirectly guided us in writing this visit
report.
Many people, especially our classmates and team members itself, have made valuable
comment and suggestions which gave us an inspiration to improve our assignment. We thank
all the people for their help directly and indirectly to complete our assignment.

INTRODUCTION

This chapter considers a subject at the very center of public finance analysis, the
distortions introduced (and corrected) by taxation. Tax-induced reductions in economic
efficiency are known as deadweight losses or the excess burdens of taxation, the latter
signifying the added cost to taxpayers and society of raising revenue through taxes that distort
economic decisions. Taxes almost invariably have excess burdens because tax obligations are
functions of individual behavior. The alternative, pure lump-sum taxes, are attractive from an
efficiency perspective, but are of limited usefulness precisely because they do not vary with
indicators of ability to pay, such as income or consumption, that are functions of taxpayer
decisions. Thus, even though tax analysis often starts with the simple case of a representative
household, it is household heterogeneity and the inability fully to observe individual
differences that justify the restrictions commonly imposed on the set of tax instruments.
Designing an optimal tax system means keeping tax distortions to a minimum, subject to
restrictions introduced by the need to raise revenue and maintain an equitable tax burden.

DEFINITION OF TAXATION

The system of compulsory contributions levied by a government or other qualified body on

people, corporations and property in order to fund public expenditures. Taxation refers to the
practice of a government collecting money from its citizens to pay for public services.
Without taxation, there would be no public libraries or parks. One of the most frequently
debated political topics is taxation. Taxation is the practice of collecting taxes (money) from
citizens based on their earnings and property. The money raised from taxation supports the
government and allows it to fund police and courts, have a military, build and maintain roads,
along with many other services. Taxation is the price of being a citizen, though politicians and
citizens often argue about how much taxation is too little or too much.

TYPE OF TAXATION

A tax (from the Latin taxo means rate) is a financial charge or other levy
imposed upon a taxpayer (an individual or legal entity) by a state or the
functional equivalent of a state to fund various public expenditures. A
failure to pay, or evasion of or resistance to taxation, is usually punishable
by law. Taxes are also imposed by many administrative divisions. Taxes
consist of direct or indirect taxes and may be paid in money or as its
labour equivalent.
DIRECT TAXES
A tax that is paid directly by an individual or organization to the
imposing entity. A taxpayer pays a direct tax to a government for different
purposes, including real property tax, personal property tax, income tax or
taxes on assets. This main sources of income liable to Income Tax is:

Gains or profits from any trade, business, profession or vacation.

Employment income.
Dividends, interest or discounts.
Rents, royalties or premium.
Pensions, annuities or other periodical payments.
Gains or profits not falling under any of the above.

Tax that been categorized as direct tax is:

COMPANY TAX
A company, whether resident or not, is assessable on income
accrued in or derived from Malaysia. Income derived from sources
outside Malaysia and remitted by a resident company is not subject
to tax, except in the case of banking and insurance business and
sea and air transport undertakings. A company is considered a
resident in Malaysia if the control and management of its affairs are
4

exercised in Malaysia. Places of control and management are

considered on the basis of where meetings of the Board of Directors
are held. A tax rate of 28% is applicable to both resident and nonresident companies. In the case of a company carrying on
petroleum production, the applicable tax rate is 38%.

PERSONAL INCOME TAX

All individuals are liable to tax on income accrued in, derived from or
remitted to Malaysia. The rate of tax depends on the resident status
of the individual which is determined by the duration of his stay in
the country (as stipulated under Section 7 in the Income Tax Act
1967). Generally, an individual becomes a tax resident for a year of
assessment if the aggregate number of days he stays in Malaysia
during the basis year is not less than 182 days (in certain
circumstances, an individual may be a tax resident even if the total
number of days of stay is less than 182 days).
Personal Relief
No.

Individual Relief Types

Self and Dependent

Amount
(RM)

9,000

Special relief of RM2, 000 will be given to tax payers earning on

income of up to RM8, 000 per month (aggregate income of up to
RM96, 000 annually). This relief is applicable for Year
Assessment 2013 only.

Medical expenses for parents

5,000
(Limited)

Basic supporting equipment

5,000
(Limited)

Disabled Individual

6,000

Education Fees (Individual)

5,000
(Limited)

Medical expenses for serious diseases

5,000
(Limited)

Complete medical examination

500
(Limited)

Purchase of books, journals, magazines and publications

1,000
(Limited)

Purchase of personal computer (once in every 3 years)

3,000
(Limited)

Net saving in SSPN's scheme

3,000
(Limited)

Net saving in SSPN's scheme (with effect from year assessment

2012 until year assessment 2017)

6,000
(Limited)

Purchase of sport equipment for sport activities

300
(Limited)

13

Subscription fees for broadband registered in the name of the

individual (with effect from year of assessment 2010 - 2012)

500
(Limited)

14

Interest expended to finance purchase of residential property.

Relief of up to RM10, 000 a year for three consecutive years from
the first year the interest is paid.
Subject to the following conditions:

10,000
(Limited)

10

11

12

(i) The taxpayer is a Malaysian citizen and a resident;

(ii) limited to one residential unit;

(iii) the sale and purchase agreement is signed between 10th

March 2009
and 31st December 2010; and
(iv) the residential property is not rented out.
Where:
(a) 2 or more individuals are eligible to claim relief for the same
property ; and
(b) total interest expended by those individuals exceeds the
allowable amount for that year. Each individual is allowed an
amount of relief for each year based on the following formula:
AxB
C
where;
A = total interest allowable in the relevant year;
B = total interest expended by the relevant individual in the
relevant year;
C = total interest expended by all the individuals.

15

Husband/Wife/Alimony Payments

3,000
(Limited)

16

Disable Wife/Husband

3,500

17

Ordinary Child relief

1,000

18

Each unmarried child of 18 years and above who is receiving fulltime education ("A-Level", certificate, matriculation or preparatory
courses).

1,000

19
Each unmarried child of 18 years and above that:
(i) receiving further education in Malaysia in respect of an award of
diploma or higher (excluding matriculation/preparatory courses).
(ii) Receiving further education outside Malaysia in respect of an
award of degree or its equivalent (including Master or Doctorate).
(iii) The instruction and educational establishment shall be
approved by the relevant government authority.

20

Disabled child
Additional exemption of RM4,000 disable child age 18 years old
and above, not married and pursuing diplomas or above

6000
(with effect
from year
of
assessment
2013)

5,000

qualification in Malaysia @ bachelor degree or above outside

Malaysia in program and in Higher Education Institute that is
accredited by related Government authorities
With effect from year of assessment 2013 additional exemption is
RM6,000

21

Life insurance dan EPF

6,000
(Limited)

22

Premium on new annuity scheme or additional premium paid on

existing annuity scheme commencing payment from 01/01/2010
(amount exceeding RM1,000 can be claimed together with life
insurance premium) - deleted from year assessment 2012 until
year assessment 2021

1,000
(Limited)

23

Deferred Annuity and Private Retirement Scheme (PRS) - with

effect from year assessment 2012 until year assessment 2021

3,000
(Limited)

Insurance premium for education or medical benefit

3,000
(Limited)

24

A married woman whose income is separately assessed generally has her overall tax liability
reduced, although this may not always be the case. The separate assessment covers all her
income sources. She may, however, elect for joint assessment, in which case, the husband is
given a wife relief of RM 3,000.
Allowable Deduction from Aggregate Income
N Contribution
o

Notes

Gift of money to the Government, State Government or Local

Authorities.

Subsection 44(6)

Gift of money to Approved Institutions or Organisations.

(Amount is limited to 7% of aggregate income)

Subsection 44(6)

Gift of money or cost of contribution in kind for any Approved

Sports Activity or Sports Body.
(Amount is limited to 7% of aggregate income)

Subsection 44(11B)

Gift of money or cost of contribution in kind for any Approved

Project of National Interest Approved by Ministry of Finance.
(Amount is limited to 7% of aggregate income)

Subsection 44(11C)

Gift of artifacts, manuscripts or paintings.

Gift of money for provision of Library Facilities or to Libraries.

Subsection 44(8)

Gift of money or contribution in kind for the provision of facilities

in Public Places for the benefit of disabled persons.

Subsection 44(9)

Gift of money or medical equipment to any healthcare facility

approved by the Ministry of Health.

Subsection 44(10)

Gift of paintings to the National Art Gallery or any State Art

Gallery.

Subsection 44(11)

Subsection 44(6A)

Income Tax Rebates for Resident Individual with Chargeable Income Less
Than RM 35,000

N
o.

Tax Rebate

Separate Assessment
Wife
Husband

Year Of
Assess
ment
2001 2008

Year Of
Assess
ment
2009
Onward
s

(RM)

(RM)

350
350

400
400

Combined Assessment
Wife
Husband

350
350

400
400

Total

700

800

Assessment Where Husband Or Wife Does

Not Has Any Total Income
Wife
Husband

350
350

400
400

Total

700

800

Other Tax Rebates

No.

Tax Rebate

(RM)

Zakat/Fitrah

Subject to the maximum of tax charged

b Fees/Levy on Foreign Workers (

deleted from year assessment
2011 )

Subject to the maximum of tax charged

INDIRECT TAXES
A tax that increases the price of good so that consumers are actually
paying the tax by paying more for the products. An indirect tax is most
often thought of as a tax that is shifted from one taxpayer to another, by
way of an increase in the price of good, Fuel, liquor and cigarette taxes are
all considered examples of indirect taxes, as many argue that the tax is
actually paid by the end consumer, by way of a higher retail price.
SALES TAX

10

This is an ad valorem stage tax imposed at the import and

manufacturing levels. Manufacturers are required to be licensed
under the Sales Tax Act 1972. Manufacturers whose annual sales
turnover do not exceed RM100, 000 are exempted from licensing.
These companies are taxed based on their inputs. However, to
alleviate the burden of small manufacturers from sales tax upfront
on their inputs, these companies can opt to be licensed under the
Sales Tax Act 1972 in order to purchase tax-free inputs. With this
option, manufacturers will only have to pay sales tax on their
finished products.

The general rate for sales tax is 10%. However, raw materials
for use in the manufacture of taxable goods are eligible for
exemption from the tax. Inputs for selected non-taxable products
are also exempted. Certain non-essential foodstuffs and building
materials are taxed at 5% while cigarettes and liquor are taxed at
15%. Primary commodities, basic foodstuffs, basic building
materials, certain agricultural implements and heavy machinery for
use in the construction industry are exempted. Certain tourist and
sports goods, books, newspaper and reading materials are also
exempted.

SERVICE TAX
This tax is imposed on certain goods and services provided in
certain prescribed establishments. The goods include food, drinks
and tobacco, while the main services are provision for premises for
meetings, conventions and cultural and fashion shows; health
services, and professional and consultancy services provided by
legal, engineering, surveyor, architectural, accounting, advertising
and other consultancy firms and services provided by insurance
11

companies, motor vehicles service and repair centres,

telecommunication services, security and guard services,
recreational clubs, estate agents, parking space services, courier
service firms, dentist, veterinary doctors, provision of
accommodation and food by private hospitals and credit cards
companies.

Currently, hotels having more than 25 rooms and restaurants

within or outside hotels are subject to this tax. The tax base has
been widened to include services provided by car rental agencies
licensed under the Commercial Vehicles Licensing Board Act, 1987
and having an annual sales turnover of RM300, 000 and above;
employment having an annual sales turnover of RM150, 000 and
above; and companies providing management services including
project management coordinating services having an annual sales
turnover of RM300, 000 and above. Generally, the imposition of
service tax is subject to a specific threshold based on annual
turnover ranging from RM150, 000 to RM500, 000.

GOOD AND SERVICE TAX (GST)

GST also can be called as Value Added Tax. GST is levied on

the supply of goods and services at each stages of the supply chain
from the supplier up to the retail stage of the distribution. Even
though GST is imposed at each level of the supply chain, the tax
element does not become part of the cost of the product because
GST paid on the business inputs is claimable. Hence, it does not
matter how many stages where a particular good and service goes
through the supply chain because the input tax incurred at the
12

previous stage is always deducted by the businesses at the next in

supplychain.
GST is a broad based consumption tax covering all sectors of
the economy in example all goods and services made in Malaysia
including imports except specific goods and services which are
categorized under zero rated supply and exempt supply orders as
determined by the Minister of Finance and published in the Gazette.
The basic fundamental of GST is its self-policing features which
allow the businesses to claim their input tax credit by way of
automatic deduction in their accounting system. This eases the
administrative procedures on the part of businesses and the
Government. Thus, the Government's delivery system will be further
enhanced.

13

CURRENT MALAYSIA TAX IMPLEMENTATION

Goods & Services Tax (GST)

Goods & Services Tax (GST), which is also known as VAT or the Value Added Tax in many
countries is a multi-stage consumption tax on goods and services. GST is levied on the supply
of goods and services at each stages of the supply chain from the supplier up to the retail stage
of the distribution. Even though GST is imposed at each level of the supply chain, the tax
element does not become part of the cost of the product because GST paid on the business
inputs is claimable. GST is a broad based consumption tax covering all sectors of the
economy i.e all goods and services made in Malaysia including imports except specific goods
and services which are categorized under zero rated supply and exempt supply orders as
determined by the Minister of Finance and published in the Gazette. The basic fundamental of
GST is it's self-policing features which allow the businesses to claim their input tax credit by
way of automatic deduction in their accounting system. This eases the administrative
procedures on the part of businesses and the Government. Thus, the Government's delivery
system will be further enhanced.

14

GST is not a new thing. The concept behind GST was invented by a French tax official in the
1950s. In some countries it is known as VAT, or Value-Added Tax. 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. Here are some of the tax rates of countries around the world who
have implemented GST or VAT ;

15

Goods & Services Tax (GST) Implementation in Malaysia

The proposed announced Malaysian GST Model will be in full force by 1st April 2015 to
replace the current consumption taxes of the Sales Tax & Service Tax (SST) which has a 5%
to 6% of the specific rate at various thresholds. Announced on 25th October 2013 by
Malaysian Prime Minister Najib Razak, companies will be having a total of 17 months for
preparation for the GST Implementation. Companies in Malaysia can begin to register for the
GST on 1st October 2014 which is 6 months before the GST implementation date and will
need to do so by 1st January 2015.
The proposed Malaysian GST standard rate is charged at 6% and the threshold for purpose of
registration under GST is the annual sales value of RM 500,000 which makes almost an
expected percentage of 80% of businesses being excluded for this GST Implementation.
The scope of the GST implementation will be charging companies on goods & services that
are:
1)

At all levels starting from production, manufacture, wholesale and retail;

2)

Supplied within the country or imported into the country;

3)

Supplies made by the Federal and State Government departments are not within the
scope of GST except for some services prescribed by the Minister of Finance;

4)

Supplies made by the local authorities and statutory bodies in relation to regulatory
and enforcement functions are not within the scope of GST; and

5)

GST charged on all business inputs such as capital assets and raw materials is known
as input tax.

16

Do also note that:

1)

GST charged on all supplies made (sales) is known as output tax.

2)

For eligible businesses, the input tax incurred is fully recoverable from the
Government through the input credit mechanism.

Business with zero rate supply can claim their inputs as credits which covers the following:
1)

Food Item

2)

Other goods (goods supplied to designated areas like Labuan, Langkawi and Tioman
and supply of treated water to domestic consumers)

3)

Services Supplied (directly benefits a person wholly in his business capacity and not
in his private or personal capacity)

Businesses that have paid their inputs that cannot be claimed as credits includes:
1)

Goods :

2)

Land used for Residential Purposes

Land used for Agricultural Purposes
Land used for General Use
Building used for Residential Purposes
Services :

Financial
Education
Childcare
Healthcare
Residential Land
Building
Agricultural Land

17

General Use of Land

Accommodation
Transport
Tolled Highway or Bridge
Funeral
Burial
Cremation
Supplies made by Societies and Similar Organizations

18

How does GST work in Malaysia?

In the current tax regime, the 10% Sales Tax (on manufacturing and imports) and 6% Service
Tax (on the F&B and professional services industry) is collected by one party (usually the
seller) and passed on to the tax authorities.
For example, in the previous 6% Service Tax regime, when you buy a cup of coffee from
Starbucks that says RM15 on the menu, you pay RM15.90 (including the current Service Tax
of 6%). Starbucks will keep RM15 and pass on RM0.90 to the tax authorities.
In a GST regime (6% GST in this calculation), the following happens:
1. Starbucks buys the coffee beans from the wholesaler to make your cup of coffee for RM10
(RM10+ 6% GST). The Wholesaler keeps RM10 and passes on RM0.60 from Starbucks to
the tax authorities.
2. You buy that cup of coffee from Starbucks which the beans were used to make, and pay
RM15.90 (RM15 + 6% GST). Starbucks now keeps RM15 and passes on RM0.30 to the tax
authorities (RM0.90 - RM0.60). The reason why Starbucks only passes RM0.30 to the tax
authorities is because they have effectively already 'paid' RM0.60 in tax earlier on the first
RM10, and only RM0.30 tax is left to be paid on the RM5 "value-add".

19

We have graphically shown this example below ;

GST vs. Current Sales and Services Tax

The only similarity between the GST and the current indirect tax regime is that
the Royal Malaysian Customs Department (Customs) which is
administering the current sales and service tax regime will also be
administering the GST regime. Apart from this, the GST regime differs quite
20

substantially compared to the sales and services tax regime.

a)

Multi-Stage Tax

In contrast to the current sales and service tax regime, GST will be a broadbased
consumption tax, based on a value-added concept. GST will be levied
and charged on all taxable supplies of goods and services made in the course
of a trade or business in Malaysia by a taxable person. The imposition of GST
on a multiple-stage basis is a key difference from the current sales tax and
service tax which is levied at only one stage of the supply chain.
b)

Tax Neutral to Businesses

GST is a multi-stage tax payable by all the intermediaries in the production

and distribution chain, with the tax burden ultimately borne by the consumer.
Unlike the sales and service tax regime, businesses which are registered for
GST purpose, will be allowed to claim input tax credit (i.e. GST it has paid in
the course of business) to offset against the GST levied on the goods or
services supplied to its customers.
c)

Broad-based Tax

GST has a substantially broader reach compared to sales and service tax
which is only levied on particular taxable goods and services. All supplies of
goods and services will be subject to GST unless they are zero-rated supplies
or exempt supplies, or fall within particular special schemes.
d)

Businesses Bear Compliance Burden

As a key feature of the GST is the ability of business to offset GST paid
against GST charged, businesses will bear a significant part of the compliance
burden of implementing GST. Businesses will play the tax collector of GST,
since ultimately the GST will be collected by businesses and remitted to
Customs after setting-off the correct amount of input tax credit. Strict rules
relating to timing of charging and remitting GST as well as invoicing
requirements will need to be adhered to.
e)

GST on Imported Services

21

Whilst no sales or service tax is imposed on services provided by a foreign

service provider to Malaysian entities, under the GST, such imported services
will be subject to GST. The reverse charge mechanism is likely to be adopted
to ensure that the GST payable are accounted for by the recipient of the services.

Understanding GST Concept & Fundamental

How GST is charged at each level of supply chain - standard rated supply
Sales

RM100,00

Sales

RM150,00

Sales

RM175,000

Assume

price
Add

0
RM6,000

price
Add

0
RM9,000

price
Add GST

Not

manufacturer's GST

GST

GST

6%

applicable

for purchases is

6%
Total

RM106,000

6%
Total

RM159,000

Total

RM175,000

Input

RM2,000

Input

RM6,000

Input tax

can't claim

RM2,000
tax
credit
GST

tax
RM4,000

remit
(6,000-

credit
GST

credit
RM3,000

remit
(9,000-

2000)
6000)
Table 1.0 Implementation of GST in Malaysia

Cost

RM9,000

increased
Cost

N/A

increased

You can't claim back for the RM9,000 of GST you paid to your wholesaler.

You can't charge GST on consumer.

22

GST Mechanism - Standard Rated

Retailer (You) is not GST registered

GST 6%

23

ADVANTAGES & DISADVANTAGES OF TAXATION IN MALAYSIA

Out of the total votes (1,213), 924 votes or 76% were disagreed with the implementation of
GST, while 262 votes or 22% agreed with it. The e-poll results may not be a good
representative of public feedback as it is only involved 1,213 votes or people perhaps.

E-poll results of public feedbacks about GST in Malaysia

Advantages of GST in Malaysia

Lower business cost

Under the current system, some business pay multiple taxes and higher levels of tax-on-tax
(cascading tax). With GST, businesses can benefit from recovering input tax on raw materials
and incurred expenses, thus reducing costs.
Increase global competitiveness
Prices of Malaysia exports will become more competitive on the global stage as no GST is
imposed on exported goods and services, while GST incurred on inputs can be recovered
along the supplies chain. This will strengthen our export industry, helping the country
progress even further.

24

Enhance compliance
The current SST has many inherent weaknesses making administration difficult. GST system
has in-built mechanism to make the tax administration self-policy and therefore will enhance
compliance.
Reduces red tape
Under the present SST, businesses must apply for approval to get tax-free materials and also
for special exemption for capital goods. Under GST, this system is abolished as businesses
can offset automatically the GST on inputs in their returns.
Equity
With GST, taxes are leveled fairly among all the businesses involved, whether they are in the
manufacturing, wholesaling, retailing or service sectors.
Fair pricing to consumers
GST eliminates double taxation under SST. Consumers will pay fairer prices for most goods
and services compared to SST.
Greater transparency
With GST implemented a business premises can show the tax applied in the sales invoice.
Customer will know exactly how much tax they are paying on the product they bought or
services they consumed.
Government can manage the country more effectively
Which is obviously beneficial to both individual and the society as a whole. For example, the
government can use the GST collected to build infrastructures such as hospitals and schools
so that people get access to quality healthcare and education.

25

Disadvantages of GST in Malaysia

The increasing of cost of goods

The main issues concerning about the implementation of GST is the costs of the goods will
increase which will burden the people in the country. Although the government claim that the
implementation of GST will not hurt the businesses and people as the tax paid on the inputs at
the previous stage is claimable or deductible, overall the the cost of goods will still increase as
the producers-pass the full value added to the end consumers at the final stage.
May result in inflation as general products prices may go up
Consequently, there might have inflation effect since the GST is applied to the prices of all
goods, at every stages which result in inflation as the general products prices may go up and
the hyperinflation might occur from the continuously of inflation.
Affected the market demand
There might have continuously effect from the products prices go up. The demand of the
market might substantially decrease due to the limited purchasing power of households. Many
people argue against the GST is that the people would not have the ability to pay for it as the
high cost of living can not be met by their current income needs and GST would unduly
burden the low income working group. Due to the increased products prices and high cost of
living, people may not willing to spend so much as their limited purchasing power and the
market demand will substantially affected.

Might lead to higher debt level

Moreover, some people is arguing that the GST should not be implemented as the introduction
of GST might lead to higher debt level of the country as other countries occurs such as Greece
and Italy. Therefore, GST has not helped in the development of the country and its would not
help in reducing the country's debt level.

26

High rate of unemployment might occur

Although the government claim that the GST would not hurt businesses due to GST claimable
practice, in fact it will hurt the businesses too. This is because of the low demand in the
market due to the high cost of product pass to the end consumers, the businesses have to
decrease the supply to meet the current condition of lower demand, thus the businesses have
to cut down the expenses such as labor cost due to the lower output needed and eventually
there might occur high rate of unemployment. Besides, the businesses is not producing in the
efficient conditions as they are not maximizing the usage of the machines, rental and etc and
all these will lead them to downsize their businesses and eventually lead to the recessions in a
country.

Increase the tax burden on low income working group (the other 85% as described item
3 above)
In addition, GST is a new form of broad-based tax that will impact the majority of Malaysians
who are not the taxpayers now. Although the government claims that the implementation of
GST would not burden the people because the income tax rate is not increasing, in fact the
GST is increasing the burden of Malaysians who are not the taxpayers now. This is because
some people is not eligible to pay for income tax where their income is under certain amounts,
so the broad based tax system-GST will impact on those low income workers who are not the
taxpayers now as they will have to pay for GST when they consume and make purchases.
The government may possibly increase the GST rate from 4% to 15% to increase
revenue
Many people is worrying the rate of GST may possibly increase in the future in order to
increase for the government revenue. This is because many countries have increased the rate
of GST after its inception. People expectation and estimation on the increasing rate of GST in
the future will lower the public consumptions as they are unwilling to spend more on the
goods and instead they are making more saving. The starting rate of GST is lower than the
sales and service tax, however people is worrying the GST rate may even higher than the
current sales and services tax in the future.
27

Worry that the effect of tax revenue re-distribution may not be achieved
Besides, the proposed implementation GST is to enhance the efficiency and effectiveness of
the existing tax system, however its might hard to comply with its as it involving complex
accounting system and required proper audit systems too. Lastly, people is worrying that the
redistribution of increased tax revenue might not be achieved or unfairly. Perhaps
implementing GST will force consumers to spend less and more careful in the retail choices
as people are fear of the unexpected inflation and consequences result from the
implementation of GST.
Low and Middle income groups will be affected badly
The blunt tax penalises everyone in the society equally, inclusive of both the rich and the
poor. Unlike the income tax or corporate tax, GST is hardly progressive. It makes necessities
such as food, transport, houses, clothing and medical treatment more expensive to the exact
same extent to both the rich and the poor, adversely affecting the equity of the society.

28

OPINION ABOUT THE IMPLEMENTATION OF GST IN MALAYSIA

Good And Service Tax (GST) also known as Value-Added Tax (VAT) is a form of
consumption tax. It is a tax on the purchase price from buyer perspective. From the seller
perspective, it value added to a product, material or service for its manufacture or distribution
product. It was a tax that only taxed the end consumer. It value added a product or service
with a sale price charged to it customer, minus the cost of material and other taxable inputs.
The different with normal sales tax is that the tax is collected and remitted to the
government once. While the GST, once the collected tax are given, the seller can reclaim the
amount they paid. And it added value on every stage of it product production. Thus the total
tax keep increasing. As the good are not a cost to the seller business, the tax it paid for the
purchases can be deducted from tax it charges to the customer.
But is it preferable and are really needed to the Malaysia country right now? Does the
implement of GST right now are the good thing for the country? Did the GST will give
revenue to the government? These question are hard to answer as the government already start
the GST at Malaysia on 1st April. Even though it is a good thing to do it as a countermeasure
for the depleting source of income of the country, which is the Petronas, the Malaysias state
owned oil company.
At the state of Malaysia now, I cannot really assure the way the government were
doing. There are a lot of problem arise before and after the implement. Before the GST, there
are some of the restaurant try to do the GST on their customer. Luckily there are a lot of the
customer are not satisfied and report it to the authority. It is well known that the restaurant
were closed since they try to do it before the date stated. The restaurant also does not fulfilled
the requirement to do the GST.
Not to mention, there are a lot of people are not understand the concept of the GST.
Even the television which is controlled by the government have already made an ad on it, the
message the government trying to convey are not delivered. A lot of people are just angry
about it as the price of goods keep increasing. This is due to the before implement the retaken
of the oil subsidies. When the price of the oil keep increase, the good also increases. But the
problem is, when the government already take the subsidies and follow the global price. The

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price are not decrease and when the GST are implemented, it keep increasing. This is also a
reality that the student had to take.
Since the cost of living increasing, it is not the same as the wages and allowance
which are not increase. Not everybody expect to have the same wages while the good price
were increasing. It is the same as the student. This is not included how the study are effected
by the increasing of the good price. People were expecting that the good price would decrease
if the price of oil were following the global. But it did not and it give a burden as the good
price keep increasing.
Since the goods seller are thinking to gain profit, it give the people no others choices.
And there are a lot of others problem in the government. There are a lot of minister were
making speech that make people confuse. Not to mention the controversy of buying a new
government personal plane. How can a government buy a plane while letting their people
suffer? That was a big question to the people and the government minister keep making a
statement that cannot even satisfying their people but even further making their people
question the now government.
As a student that are affected by the GST and confuse by the action of government, I
would say that I am not agree if the GST are implement now in this country. Because the
country economic were not stable. And there are a lot of thing that I as a student does not
understand the concept of the GST. And not to mention how the reaction of the people that
keep demand answer but there was no answer from the government. And if there a time that
are perfect and the economy of Malaysia were stable, then it would be a best thing to do GST.

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RELATED MATTERS

Zakat in Malaysia
Zakat is one of the five pillars of Islam. It is an act of worship and like any other act of
worship it is solely for Allah. It ranks in importance immediately after the prescribed prayer. It
is levied on definite kinds of property and its coverage is quite extensive. It covers almost all
forms of wealth and some forms of income as well as savings. Zakat can be disbursed to eight
categories (asnaf) of people or services. Four of which relate to the poor and needy (eg : the
destitute, the needy, the wayfarers and the debtors). Three relate to promotion of and defense
of the faith (eg : new converts, to free the slaves and in the cause of Allah) lastly we have the
cost of zakat administration (zakat collectors). The imposition of zakat is to purify oneself as
well as ones own property. In a wider perspective, zakat is intended as a means to achieve
social justice. Social justice implies that each and every individuals in a community is assured
of minimum means of livehood.
Sources of Zakat Fund

Zakat on business
Zakat on agriculture
Zakat on Savings
Zakat on livestock
Zakat on mining
Zakat on earnings
Zakat fitr.

Method of collection
1. Collection by appointed staff
2. Collection through offices of the state religious department
3. Collection through salary deduction

Calculation of zakat:
a)

Zakat For Income

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The meaning of salary is someone income from his services with the employer or somebody
or company orinstitution. For example : Annual salary,a years salary, variety
allowance(transport, food, meeting) and others(including bonus and anything which can be
describe as income).

Method A
2.5 % on the amount of income per year.
Example : RM 1,500,00 x 12 month = RM 18,000.00
Rate of Zakat that should be paid is: RM 18,000.00 x 2.5 % = RM 450.00 per year
RM 450.00 per year divided with 12 month = RM 37.50

Method B
The income per year will be deducted with the life requirement (basic) per year.
A was married and his salary is RM 1,500.00 per month x 12 month = RM 18,000.00 per year.
Then, the salary is deducted to the household expenses including himself (per year) RM
8,000.00, his wife (per year) RM 3,000.00 and his child (each one) RM 8,000.00. The amount
is RM 11,800.00 minus to the per year income per year = RM 6,200.00 per year. Therefore the
rate of Zakat is:
RM 6,200.00 x 2.5 % = RM 155.00 per year RM 155.00 per year will divided with 12
month = RM 12.91 per month.

b)

Zakat of KWSP

Two views:
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1. To pay when retire

2. To pay every year when the conditions are correct even the money still in
KWSP.
The rate of Zakat is 2.5 percent.

c)

Zakat of Agriculture
Paddy price = 1 kilogram =RM0.60
Subsidy price = 1 kilogram= RM0.24
Price of paddy per KG =RM 0.84
RM 0.84 X 1,300.49 kilogram (5 Ausuk equal to 2 Kunca 2 Nalih 6 gantang) = RM
1,102.94
The rate of Paddy Zakat is 1/10 RM 1,102.94 X 1/10 = RM 110.29

Tax Incentive
The Income Tax (Reduction from Retired) (Amendment) Act 2000 anybody who pays Zakat
will enjoy rebate for their income tax. But this amendment only covers an Individual.

Law Related on Zakat Collection

The penalties vary from state to another
Eg. Kedah- Only zakat on agriculture is required to pay at the offiice.
Eg. maximum penalty RM500, minimum RM10

Zakat distribution in Malaysia

Basis of distribution:

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1. Principle of Istiab- To distribute to all asnaf

2. Principle of had alkifayah Sufficient to asnaf
3. Principle of Khususiah Special to specific asnaf

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CONCLUSION

Recognition must be made of the need for the government to explore methods that increase
future revenue sources. On the condition that the government does announce the GST,
preparations for the implementation are crucial. The primary concern will be the impact upon
low-income households in acknowledgment of the regressively inherent in a GST. The GST
will put upward pressure on cost of living through inflation during the initial stages.
Therefore, the government must address and strengthen the welfare state to protect those most
vulnerable in society. One, all-encompassing way to provide assistance is through transfer
payments in the form of vouchers and exemption targeting for goods which are deemed basic
necessities. Through analyzing the implementation models in the advanced countries such as
Singapore and Australia, we can see from their experiences and factor in constants in
preparation for the GST implementation in Malaysia. As one of the few countries in the
region that still do not have in place a broad consumption based tax system, Malaysia can
refer to many countries around the world who do in preparing for a successful and smooth
implementation. A common trait associated with an efficient GST system is improved
international competitiveness. This is in line and a goal which Malaysia aims toward in
becoming a high-income nation by 2020. Lastly and of utmost importance, if the government
intends to expand the tax base and increase the efficiency of tax collection through the use of
a GST, it will bring the majority of the population within the tax base. Therefore, all citizens
become stakeholders in the budget and the government must begin to display strong political
will to cut wastages, leakages and corruption. Prudent spending and transparent accounting
will go a long way in winning over public acceptance of the GST.

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REFERENCES

(n.n), Tax, (n.d), Retrieved on 8 May 2015 from:

http://en.wikipedia.org/wiki/Tax
(n.n), (n.d), Direct Tax, Retrieved on 8 May 2015 from:
http://www.investopedia.com/terms/d/directtax.asp
(n.n), (n.d), Indirect Tax, Retrieved on 8 May 2015 from:
http://www.investopedia.com/terms/i/indirecttax.asp
(n.n), (2000-2015), Tax Structure, Retrieved on 8 May 2015 from:
http://www.asiatradehub.com/malaysia/tax1.asp
(GST VINTAGE SDN BHD), (2013), GST, Retrieved on 8 May 2015 from:
http://www.gst.com.my/what-is-gst-goods-and-services-tax.html
(n.n), (n.d), Good and Service Tax, Retrieved on 8 May 2015 from:
http://en.wikipedia.org/wiki/Goods_and_Services_Tax_
(Malaysia)

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