Now the question is what exactly is GST and how it is going to transform the current tax system.
Goods and Service Tax (GST) is an indirect tax levied on goods and services apart from those exempted by the GST law. It is the single tax on the supply of goods and services, right from the manufacturer to consumer. As it is one indirect tax for the whole nation, it is one step to make Malaysia a unified country.
Let’s understand this in the simplified term. Take a look at the real-time market scenario.
An item goes through from manufacture or production to the final sale. This undergoes through multiple stages.
· The first stage is buying of raw materials.
· The second stage is production or manufacture.
· Third stage is warehousing of materials.
· Fourth one is the sale of the product to the retailer.
· And the final stage, the retailer sells you – the end consumer – the product, completing its life cycle.
Goods and Services Tax will be levied on each of these stages, which make it a
Multi-stage tax.
· The GST taxation laws will put an end to multiple taxes like excise, CST, VAT, service tax which is levied on different products, starting from the source of manufacturing, till reaching the end consumer.
Let understand with an example-
A manufacturer wants to make a shirt. To make a shirt he needs to buy yarn. After manufacture, it turned into a shirt, as a finished product. So, the value of the yarn is increased when it gets woven into a shirt. Then, the manufacturer sells it to the warehouse agent who attached labels and tags to each shirt. That is another addition of value after which the warehouse sells it to the different retailers who packages each shirt separately and invests in the marketing of the shirt thus increasing its value.
GST will be levied on these value additions – the monetary worth added at each stage to meet the final sale to the end customer.
Earlier the pattern of tax levy was like this:
Earlier when a product was manufactured, the center would levy an Excise Duty on the manufacture, and then the state will add a VAT tax when the item is sold to the next stage in the cycle. Then there would be a VAT at the next point of sale.
Summary
· GST is a transparent tax and reduces the number of indirect taxes.
· GST will be levied only at the destination of consumption based on VAT principles and not at the various points (from manufacturing to retail outlets). This will help in eradicating economic distortions and bring about a development of a common national market.
· GST is backed up by GSTN, which is fully integrated tax platform to deal with all aspects of GST.
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