Executive Summary

The differences between the current Sales and Services tax structure and the proposed GST system is also analysed. The current single stage sales and services tax is from 5% to 10% while the proposed broad based GST is 4%.

This report also determines the importance of GST to the government’s fiscal policies and the potential negative impacts of the proposed GST system to business entities and the people. The main purpose for introducing GST is to make the current taxation system more comprehensive, efficient, effective, transparent and business friendly. The potential negative impact is the problem of price hike as a result of inefficient price control and the additional compliance costs for businesses to have additional work to track input taxes paid.

The possible hurdle Malaysia government faces in the process of implementing this new system is also being discussed. The significant informal sector makes the tax system inequitable. Besides, lack of transparency bred uncertainty among the business community. The huge maintenance cost each year of RM8.5 million is burdensome. Moreover, choosing the most suitable tax rate and determine the goods that should exempt take long time. Finally, because exports are generally zero-rated, this is often where GST fraud occurs.

This report also critically discusses the tax issues that have arisen as a result of implementing GST/VAT in certain developing countries. The major reason for the decline in Ukraine’s VAT to GDP ratio lies in the Ukraine’s tax administration. On the other hand, the VAT evasion, hidden economy size and corruption in Ukraine are closely related.

In doing this reports, we conducted our researches through books, journals, online materials, government websites and electronic newspapers. However, there were several limitations while conducting the study. There were only limited numbers of countries which have implemented GST successfully until today. In addition to that, most countries that adopted GST were developed countries such as Australia, Singapore and etc. There were limited numbers of Asian developing countries which has implemented GST.

In conclusion, GST can be an effective indirect tax. To make it a success, effective educational programmes and private and public sector partnering is necessary. In planning and implementing the GST, countries like United Kingdom, New Zealand, Australia and Singapore can be used as learning examples for Malaysia.

The contributions of our tax systems, especially the consumption taxes to the development of our country’s socio-economic system

Accoding to OECD (n.d.), the main purpose for the introduction of tax is to finance the public expenditures as well as addressing socioeconomic concerns. In the globalized market today, most of the companies and individuals are required to pay taxes. Malaysia has adopted a fiscal-like system for the past few decades. Malaysia taxation system comprises of direct and indirect taxation. Examples of direct taxation income and corporate tax whereas indirect taxation includes sales and services tax and also others. Refering to the table 1 below, in 2008, direct taxes accounted for about 51.4% of total taxes and 19.1% comes from indirect taxes (Zakariah and Sulaiman, n.d.). Out of this 19.1%, sales and services tax (consumption tax) accounted for 7.3% of the indirect taxes. Therefore, consumption tax does plays a vital role in total revenue in the country.

Table 1: The breakdown of Indirect Tax Revenue in 2008

Table 1: The Gross National Product in Malaysia from 2005 to 2009

Source: http://www.tradechakra.com/economy/malaysia/gnp-of-malaysia-152.php

Table 2: Gross National Income expressed in Purchasing Power Parity Dollars

Source: http://www.google.com/publicdata?ds=wb-wdi&met=ny_gnp_mktp_pp_cd&idim=country:MYS&dl=en&hl=en&q=gnp+malaysia

Table 2: Gross National Income expressed in US dollars

Source:http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_cd&idim=country:MYS&dl=en&hl=en&q=gdp+malaysia

Correction of Market Failures