A casuality analysis of the effect of implementation of GST in the financial development and inflation rate of a country

Introduction

1.1 Overview

Goods and Service Tax (GST) or also known as Value-Added Tax (VAT) is a tax on goods and services. It applies to most products consumers buy. Malaysia will be implementing GST in 2015. Implementation of GST has still an unknown result to the economy in Malaysia. In this introduction chapter, the overview of GST and the background of economic development in South Africa are introduced. Secondly the problem statement then followed by the significance of study will be discussed. Furthermore, the objectives used in this study is introduced. Lastly, the scope of study and organization of this study will also be included.

1.2 Overview of GST

GST or Goods and Services Tax, which is also known as VAT or the Value Added Tax in many countries is a multi-stage consumption tax on goods and services whereby each point of supply in a production chain is potentially taxable up to the retail stage of distribution. At the same time suppliers are entitled to refunds of GST incurred on business inputs. A French tax Official in the 1950s had invented the concept behind GST. Today more than 160 nations are practicing this form of taxation, including the European Union and Asian countries such as Sri Lanka, Indonesia and China.

GST is a broad based consumption tax covering all sectors of the economy. If their yearly sales income has topped the prescribed limit, business making chargeable supplies have to be listed under GST. GST only can be charged and collected by person who registers under GST on the taxable supplies of goods and services supplied by that person. GST is charged in the value or selling price of products. The amount of GST earned on input can be deducted from the amount of GST charged by the registered person. There are penalties charged if offences regarding GST are made. Penalties may be imposed if there is incorrect return, evasion of tax, improperly obtaining refund, offences in relation to goods, invoices and receipts, general offences and late payment of GST.

1.3 Background of economy development in South Africa

South Africa is Sub-Saharan Africa’s largest economy and one of the world’s largest producers and exporters of gold and platinum. The economy of South Africa is the second largest in Africa, it reports for 24% of its gross domestic product in terms of purchasing power parity, and the World Bank has ranked it as an upper-middle income economy. At the end of over twelve years of international sanctions since 1996, South Africa’sGross Domestic Product has almost tripled to $400 billion, foreign exchange assets have increased from $3 billion to nearly $50 billion, generating a flourishing and substantial African middle class, within two eras of instituting democracy and ending apartheid. In May 2009, National Assembly has elected Jacob Zuma as President of the African National Congress. Since the end of apartheid in 1994, the ANC has dominated politics.