Goods and Services Tax Analysis

INTRODUCTION

1.1Research Background

In recent months there are a lot of issues about many retailers especially the traditional retailer want to quit from their business. Their main reason is the launch of the Goods and Services Tax (GST). They are not really aware about GST that be announced in the Malaysia Budget 2014. The aware that we mean here are understanding of the GST. Most of the retailer alert that there will be GST launched in 1 April 2015. The involve supplies chain people like manufacture, wholesaler, and retailer were giving a lead time of 14 months to get ready. There are a lot of GST seminars are held in the 14 month. But it not really effective due to the level of education, from mouth to mouth it causes the information incomplete or become wrong information.

GST was first announced in the 2005 Budget for implementation in 2007. However, in February 2006 the Malaysian Government announced that GST would be deferred as more time was needed to get feedback from the public. GST was tabled for first reading in 2009 for proposed implementation in 2011. The bill was supposed to be presented for second reading in 2010 but was withdrawn.

However too many retailer did not aware of GST because they did not know how to use the system. The retailer get an order to register GST from Custom Malaysia but they not know the procedure to proceed the GST. The guide from the website did not help the retailer who does not know to use the technology. The retailer also cannot decide the value of income per year exceed RM500, 000 required to register or not because tax will be pay from the consumer.

GST 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. The basic fundamental of GST Malaysia is its self-policing features which allow the retailer to claim their Input tax credit by way of automatic deduction in their accounting system.

Still the VAT arrangement at the Centre and the State had lacks. The CENVAT does not consist of several central taxes such as extra charge, additional excise duty, etc. It also does not capture the value-additions in the distributive occupation below the manufacturing level. The State level VAT does not include some taxes such as luxury tax, entertainment tax, etc.

Goods and Services Tax (GST) to replace the existing multiple tax structures of Centre and State taxes is not only desirable but imperative in the emerging economic environment. Increasingly, services are used or consumed in production and distribution of goods and vice versa. This involves taxation of goods and services in an integrated manner as the blurring of line of demarcation between goods and services has made separate taxation of goods and services untenable.

Malaysia imposed the GST on April 1 and it is mandatory for businesses that have a turnover of more than RM500, 000 to register with the government. The government expects to collect RM23.2 billion a year from GST. Malaysia has the lowest GST rate in Southeast Asia at 6 per cent while the Philippines has the highest at 12 per cent.

1.2Problem Statement

Implementation of GST in a country can be broadly considered from three major perspectives:

1. Government – on the setting of GST policies and rulings as well as studies on associated impact on economy, political and other tax systems

2. Customs and Excise – on the setting of specific guidelines for different type of businesses, setting of an appropriate Information Systems solutions to handle GST claims and reporting and setting of the appropriate documentations and forms.

3. Businesses – on what businesses need to do to make sure that their business is GST compliant.

This research paper focuses on GST implementation from business perspective, with particular reference to retailers, with specific aim to examine their awareness as to what need to be done in order to be GST compliant. Awareness contributes not only towards readiness but also potential support for the new tax system. Businesses are unlikely to accept or support a change in the tax system without being made aware of the implications it has on their businesses.

According to Bhupinder Singh, the executive director of Ernst & Young (Utusan Malaysia, 2005), low awareness of GST implementation especially among the retailers could create mess when it is first introduced. After the implement the Malaysian hard to accept new system of tax been introduced. Under GST regime, businesses bear no additional tax as long as they are registered for GST. Any tax paid on purchases may be claimed back against tax collected on sales.

However, the process of collecting and recording tax, documenting it, offsetting it and keeping all records in order to comply with GST requirements for GST registered businesses could be a tedious and expensive process for small and medium sized businesses.

GST implementation in April 2015 will not only give the direct effect on the cash flow of the retailer and businesses, it also needs every company to change their practice in the accounting system and business processes. Businesses must be prepared to have good accounting records and trained personnel and proper software to ensure success.

From estimates there are at least 500,000 retailers in Malaysia that contribute significantly to Malaysian economy (MYOB, 2005). At present, not much is known about the impact GST will have on this sector. We feel that it is important that level of awareness is ascertained to gauge the impact GST may have on the retailers as the implementation time comes closer.

1.3Research Objectives

This study will be focused on the factors that influencing the level of awareness of GST’s implementation impact among retailers:

i.To study the relationship between knowledge and the level of awareness of GST among retailers.

ii.To study the relationship between resources and the level of awareness of GST among retailers.

iii.To study the relationship between attitudes and the level of awareness of GST among retailers.

iv.To study the relationship between channels and the level of awareness of GST among retailers.

1.4Research Questions

The research question will be developed for this study are:

i.Is there a relationship between knowledge and the level of awareness of GST among retailers?

ii.Is there a relationship between resources and the level of awareness of GST among retailers?

iii.Is there a relationship between attitudes and the level of awareness of GST among retailers?

iv.Is there a relationship between channels and the level of awareness of GST among retailers?

1.5Research Hypothesis

Four hypotheses have been developed for this study based on dependent and independent variables as given below:

Hypothesis 1

Ho:There is no significant relationship between knowledge and the level of awareness of GST among retailers.

H1:There is a significant relationship between knowledge and the level of awareness of GST among retailers.

Hypothesis 2

Ho:There is no significant relationship between resources and the level of awareness of GST among retailers.

H1:There is a significant relationship between resources and the level of awareness of GST among retailers.

Hypothesis 3

Ho:There is no significant relationship between attitudes and the level of awareness of GST among retailers.

H1:There is a significant relationship between attitudes and the level of awareness of GST among retailers.

Hypothesis 4

Ho:There is no significant relationship between channels and the level of awareness of GST among retailers.

H1:There is a significant relationship between channels and the level of awareness of GST among retailers.

1.6Significance of the Study

Since the study is about Good and Services Tax (GST) that will implement in April 2015. The retailers have heard about Good and Services Tax (GST) but the retailers not know, “How’s the procedure?” “What functions it is?” “These kinds of questions always faced by people especially who lived at rural area. Therefore, with this research it can help the retailer know what the advantages and disadvantage for Good and Services Tax. This research also can provide the clear view and direction to them when they want to doing in future to attract their customers. It also determine the effective of the government to implement GST in case to improve the economic and development of country.

The significant of the study focus on many category which are for the researchers and the retailer:

Researchers

For doing this research, the researchers can get more sustain in the term of knowledge and skills. This study also helps the future researcher use as a guideline or reference to get information by understanding and duplicating the research to further study in identifying other critical factors.

The Retailers

Retailers who ran the business entity around Kota Bharu had gained the most benefits from this study. Based on the result of this study, the retailers were able to understand in details about effectiveness of Good and Services Tax and also how the retailer aware about this issues. Besides that the retailers able to make accurate decision about which type of product that will bear a tax and exclude tax. At the end of this research, the retailers can optimize their sales with the guide been provided by the government. The government also provide a course for the retailer to understand the basic of calculation taxed been charged.

2.0GST Implementation in Other Country

Goods and Services Tax (GST) is a consumption tax established on the value-added concept. GST, also recognized as the value added tax (VAT) in several countries, is a multi-stage consumption tax on goods and services (http://gst.customs.gov.my, 2013). GST is imposed on goods and services at every manufacture and supply stages in the supply chain as well as importation of goods and services (http://www.treasury.gov.my, 2013). In Malaysia, GST will replace the present consumption tax comprising the sales tax and the service tax (SST). Implementation wise, GST shall be prosecuted and charged on the taxable supply of goods and services made in the course or furtherance of business in Malaysia by a taxable person and it is also can be charged based on the importation of goods and services (http://gst.customs.gov.my, 2013). GST is proven to be a better tax system and could spur economic growth as well as increase competitiveness in global market (http://www.treasury.gov.my, 2013).

The proposed GST structure in India is similar to that of Canada. Some of the problems that they faced during implementation of GST are discussed here. GST is the form of indirect tax because the tax collection from the government is not directly obtained from the taxpayers. The consumers pay the taxes for the government through the sellers.Besides, experience of Australia has also been covered. Malaysian taxation system is generally divided into two direct taxes and indirect taxes. Four components i.e. customs duties, excise duty, sales tax and service tax are consists by Indirect taxes are administered by the Royal Malaysian Custom Department (RMCD). Direct taxes such as income tax, petroleum income tax, real property gains tax, and stamp duty. Taxation is a vital economic tool because it can be employed to regulate the economy, to revitalize economic growth through the granting of fiscal incentives as a principal aim of implementing tax policies and to provide funds for development projects (JeyapalanKasipillai, 2005).

Each of the countries has economic purposes due to the implementation of GST. For example, in New Zealand the usage of GST is unlikely being a useful stabilization tool for monetary policy (Iris Claus, B. S., 2008). The empirical study shows that using GST as a monetary policy tool in New Zealand case has shown that it leads to a larger adjustment in the policy instruments and fluctuations in the real economy and inflation.

2.1Resources

2.1.1Cost Start-up

Start-up Compliance Costs Estimates the issue of how much businesses spent in preparing for a GST is problematical as various studies have made varying cost estimates. In estimating start-up compliance costs, uniformity in calculations is important to attain comparative reliability. According Pope (2000) the reliability of GST start-up cost estimates presented by different groups may be questionable because of their treatment of the joint cost problem and also a failure to differentiate between start-up and recurrent costs.

Unfortunately, there are no reliable studies internationally on GST start-up compliance costs, although the literature has long recognized start-up costs and learning curve costs from a theoretical viewpoint (for a useful review see Pope 2000c). However, the methodology for estimating taxation recurrent compliance costs affords some useful insights; see, for example, Sandford et al (1989) Pope (2000a) Tran-Nam et al (2000). This literature confirms that overhead costs, such as office accommodation, lighting, heating, computer equipment, are difficult to allocate where they are jointly used in normal business activities and tax compliance work.

This principle extends to GST compliance costs where a computer and its associated software is used, say, half for GST compliance work and half for management purposes. If the purchase or upgrade was made because of the GST, it could be argued that this purchase would not otherwise have been made, particularly in the case of small business.

Related to the joint cost issue is the depreciation of computer hardware and software used for GST compliance. Strictly speaking, in principle, the compliance costs of a new computer system to operate a new tax should be spread over a period rather than be considered a cost solely at the time incurred (Sandford et al 1989). Unfortunately, this principle is difficult to adopt in practice.

2.2Attitudes

First research from Shiva Raman S (June 2010) with title Migration to GST: Preparedness and level of Knowledge, Understanding, Application and Skills of Human Resources in the Government and the Industry which questionnaires were used to collect data from middle level tax officials, tax department staff, trade and industry, professionals and general public. Opinionnaires are used to amount the attitude and the acceptance of the respondents. It generally employs the skills by which the degree of the agreement to a matter can be traced. In this article, the attitude was found that given negative attitude of staff towards training. Attitude is a major concern cited by all most all the officials. Supporting the employees to achieve the objectives of GST is one of the most challenging tasks during the transition. Officials are more concerned about the attitude of grass root level staffs that are unknowing and unwilling towards training programs.

Implementing Goods and Services Tax in Malaysia is the research from Lim Kim-Hwa (2013). It is impossible to make GST a liberal tax as long as we want to raise the same amount of revenue. GST is a returning tax. The implementation of an ill-thought out welfare system is likely to lead to inflation, abuse, wastage and possibly accentuate a dependency culture. Although cash handouts can be a quick fix and might be a politically perception move, this might not be conducive in driving economic growth led by innovation, knowledge and entrepreneurship. Although these measures are aimed at changing the profit-centred attitude and corrupt practices of the businesses, sustained implementation of these in an era of high inflation will result in the withdrawal of labor and capital from the production of these goods. This is because unprofitable businesses are unsustainable in the long run, and capital and labor might be rearranged to the production of other profitable goods which are not subject to price controls.

Third research from Adesina Olugoke Oladipupo and Famous Prince Izedonmi (2013) with title Public Perception and Attitude towards Value Added Tax (VAT) in Nigeria. The analysis of results showed that most of the respondents have poor knowledge of VAT law in Nigeria, regardless of their level of literacy, and that there was no significant difference in the amount of knowledge of VAT law among the three groups of respondents used for the study. Obtainable of the total of 2700 taxpayers engaged in the study only 1467 taxpayers responded. Public attitude towards tax matters has often been negative. Taxation was to a large level considered as an instrument of domination manipulated by the ruling class over the subjects.

2.3Knowledge

The knowledge base will involve, at its core, a repository of GST issues identified by agencies and the suggested resolution applicable to those issues.

• Reduction in the need for agencies to re-learn lessons already addressed by other agencies, providing efficiencies in compliance activities;

• A build-up of GST knowledge within the government sector to assist with compliance as well as ongoing management of the GST;

• increase the likelihood that GST compliance issues are addressed with consistency across agencies;

The knowledge as a source of jobs and income, they have gained an important position in the economic development agenda. Hereby, clusterization policies have been conceived as a framework to induce the growth and to optimize resources used to support them. Creating clusters could help to overcome R&D, production, and marketing obstacles, and allow them to compete with large companies in distant foreign markets. It increase the likelihood that agencies will consider the significant issues facing their business.

Otherwise knowledge may suffer in business decisions and as whole the economy of the country in turn. The direct taxes are influencing income earners but indirect taxes are influencing every common citizen of the country and have great social impact. Cost accountants as experts in the Indirect taxes can take lead and disseminate the knowledge of taxation across the country. Understanding the forthcoming GST tax regime and Direct Tax Code; Cost accountants have very vital role to play which will facilitate the better tax administration.

3.1 Introduction

This chapter will address the overall procedures and how the survey will be conducted. This chapter consists of research design, research framework, research hypothesis, research methods, subject and sample, research instrument, data analysis, and conclusion for this chapter.

3.2 Research Framework

The figure 3.1 shows the level of knowledge of GST among retailer research framework in this study. The framework summarized the relationship between independent variables and dependent variable. There are four independent variables which is knowledge, attitudes, resources, and channel has been used. The dependent variable is the awareness of GST among retailer in Kota Bharu Kelantan.

3.3Research Design