Wednesday, April 1, 2015
New tax system will ensure most of 84% who do not pay their dues do so
With the launch of the Goods and Services Tax (GST) system, the base of companies and individuals paying taxes will be significantly enlarged and will capture those who could have been under-declaring or evading taxes.
According to a Finance Ministry official, of the 13.2 million employees in 2012, only 2.24 million, or about 17%, paid tax.
“In previous years, it was about 15%. But the numbers have improved because of the pay-as-you-earn system,” said the official.
The statistics are worse among registered companies. Of the 1.02 million companies registered with CCM as at end 2012, only 15.6% or 159,000 companies paid tax.
Under GST, more companies will end up paying tax because the system forces companies to be compliant and businesses to have in place a system that is “self-disciplined”.
The early result of the Government reforms in the tax system is already beginning to show.
It is learnt that of the 345,376 companies registered with the Customs Department under the GST programme, almost 10% have not had a tax file.
This means about 30,000 or more of these companies that have a turnover of more than RM500,000 have not been paying taxes all these years.
Under GST, which was first mooted in 2005 by former Prime Minister Tun Abdullah Ahmad Badawi, companies that sell goods or provide services act as tax agents and have to charge a 6% tax on items that are not exempted.
GST replaces the Sales and Services Tax that can go up to 10%, depending on the outlet and type of product. But under GST, the rate set is 6% and it is charged at every layer of the production process.
According to Customs GST director Datuk Subromaniam Tholasy, the new system introduces a bottom-up approach compared to the present top-down system.
In the top-down approach, companies hand over their invoices to auditors, who will then file their tax returns. But there is no system in place to monitor whether there are omissions in filing invoices.
Under GST, there is an input and output tax component for every stage of the production process.
The company can claim from the Government for all the taxes that it has incurred in making a certain product or providing a service and, when it sells the product or service, there is an output tax of 6%.
For instance, a restaurant operator can claim from the Government for GST charges that he or she would have paid for purchasing raw materials to prepare food. It even includes the electricity bill incurred.
The Customs Department would be able to gauge the size of the business that the restaurant generates from the input and output tax.
“The system basically takes into account the various transactions that the business had entered into to provide the goods or services. It monitors all levels,” said Subromaniam.
He said GST would allow Customs to gauge the size of the business and it was possible to minimise cases of outlets under-declaring their taxes.
“For instance, based on the electricity charges and tax claimed, the authorities would be able to determine the number of hours that the business operates. It is a more efficient and fair tax system compared to the current one.”
He said GST would force businesses to be more tax-compliant and have better self-discipline.
Subromaniam was of the view that over the longer term, the system would be able to detect the segments of the production process that made excessive profits.
He said this applied even for the pharmaceutical industry, where prices were resistant to change.