Bajet 2005 (2)

Nothing new in the 2005 Budget unveiled by Pak Lah yesterday, except one thing I must say; the Goods and Services Tax (GST), one single consumption tax to replace current sales and services taxes effective Jan 1, 2007.

GST, as we call it, is somewhat similar to Value Added Tax (VAT) - it is a consumption tax which is levied at each stage of production based on the value added to the product at that stage.

Ultimately, the final consumer bears the tax. It is not a charge on companies. It is charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.

It is collected fractionally, via a system of deductions whereby taxable persons (that is, VAT-registered businesses) can deduct from their VAT liability the amount of tax they have paid to other taxable persons on purchases for their business activities.

This mechanism ensures that the tax is neutral to the company regardless of how many transactions are involved.

Paklah has assured us that GST wont burden the lower income group, as basic goods & services will either be zero-rated or exempted from this tax.

However, Deloitte KassimChan Tax Services executive director Theresa Goh cast doubt over the impact from GST, as she inquired, "The question now is how much savings from the proposed reduction of individuals' and companies' income tax against the rate of GST to be applied in year 2007?"

"Hopefully, businesses would not start to raise their prices of goods and services to take advantage of this advance announcement as per the experiences from other countries."

Lets pray what she fears wont happen.

While Prof. Dr Chiam Heng Keng, a Human Rights Commissioner and academician, immediately snub it by saying “the GST will increase our cost of living, such as in Singapore and other developed countries."

It is believed that the GST would have a greater impact on the lower income group who generally do not pay any income tax currently, despite Government assurances that certain staples and basic goods such as rice would be exempted from the new tax.

Like Jeff said, "How would Joe Public fare in the face of GST in two years' time?"

Meanwhile, I welcome tax experts out there to shed more lights on this.