Q&A: GST for dummies

This, he said was based on the 'People First' principle, as the GST is a "fair and comprehensive tax system that benefits all Malaysians."

Below is a Q&A which might help you in understanding GST better:

What was the Government's announcement on the GST all about? The Government proposed that the current Sales and Services Tax (SST) of 16% be abolished. These taxes will be replaced by the GST, which Najib stressed is not a new tax.

Why is the Government implementing the GST? To improve the existing tax system, in short.

The Government said the current SST had weaknesses such as 'double taxation' on consumers as well as the absence of full tax relief on exported goods and transfer pricing issues.

These weaknesses result in losses to both the consumer and Government.

What is the GST rate? The proposed GST rate is set at 6%.

How does this rate compare to other countries? The Government said this rate is among the lowest within Asean countries -- 10% in Indonesia, Vietnam, Cambodia, the Philippines and Laos, and 7% in Singapore and Thailand.

When will the GST take effect? From April 1, 2015.

What would the GST affect? Everything. As a consumption tax, GST will be charged on goods and services.

Does this mean that everything will be more expensive? Not necessarily. Certain goods and services are tax exempted.

In Najib's speech, he said basic food items are not charged with GST (such as rice, sugar, salt, flour, cooking oil, lentils, spices, salted fish, 'cencalok', 'budu' and shrimp paste).

Other basic necessities such as piped water supply and the first 200 units of electricity per month for domestic consumers also will not be charged with GST.

Other areas which are GST-free include:

• Services provided by the Government such as issuance of passports, licenses, health services and school education
• Transportation services such as bus, train, LRT, taxi, ferry, boat, highway toll as well as education and health services
• Sale, purchase and rental of residential properties as well as selected financial services

Will the government help us cope with the GST? Definitely. The Government plans to assist the rakyat during this transition period with various help and support. For example, the Government will be giving a one-off RM300 cash assistance to households who are 1Malaysia People's Aid (BR1M) recipients.

Do we still need to pay the same income tax rate? Individual income tax rates will be reduced by 1% to 3% for all tax payers to increase their disposable income. This generally means that families with a RM4000 monthly income will no longer have tax liability.

Other tax payers will enjoy tax savings and individual income tax structure will be reviewed to enhance the competitiveness as well as to retain and attract talent and skilled workers into the country.

The chargeable income subject to the maximum rate will be increased from RM100,000 to RM400,000. The current maximum rate at 26% will be decreased to 24%, 24.5% and 25%.

What about businesses? The Government will reduce corporate and SMEs (small and medium enterprises) income tax by 1% from the 2016 assessment year.

As for cooperative income tax, the government will reduce it by 1% to 2% from the 2015 assessment year.

What other assistance will being given?

• Expenses incurred for training in accounting and ICT related to GST be given further tax deduction for 2014 and 2015 assessment years.
• Cost of purchasing ICT equipment and software is given Accelerated Capital Allowance until 2016 assessment year.
• GST training grant of RM100 million and purchase of accounting software at RM150 million
• Tax deductions-secretarial fee and tax filing fee from 2015

Why now? The Government feels that because the inflation rate of 2% is "low and contained", it is indeed the best time to implement the GST.

How many countries have implemented the GST? More than 160 countries already have it. This, according to the Government, demonstrates that the GST is proven to be a "transparent, effective and fair tax system."

Will the price of goods go up? Probably. However, Najib said consumers only need to pay tax once and in reality, the price change in goods and services will be "very minimal". There are goods that will become even cheaper, depending on whether they are essential goods or not.

Najib also warned "no parties should take the opportunity to increase prices unscrupulously."

The Government has promised to constantly monitor prices. Enforcement efforts will be stepped up through the Price Control and Anti-Profiteering Act 2011.

What else will the Government do to make this work? A GST monitoring committee will be formed. It will be chaired by the second Finance Minister with members from other Government agencies, industries and NGOs.