The Goods and Services Tax (GST) will be more socially equitable and economically efficient as it will be levied on consumption and not investment or profits of businesses.
It will also protect the welfare of low-income and vulnerable groups, as well well, promote prudent spending among the people, says the Finance Ministry in the 2013/2014 Economic Report released today.
The report is issued in conjunction with the tabling of the 2014 Budget today by Prime Minister Datuk Seri Najib Razak, who is also Finance Minister.
It said the GST would broaden the tax base, enhance compliance and increase revenue collection for the government.
The proposed GST model is expected to benefit all segments of the society, including consumers, the private sector, the government and the economy.
"It will reduce the tax burden on the rakyat, especially the lower income groups through zero-rated supplies, exempt supplies and standard-rated supplies," the ministry said in the report.
It said items that will be zero-rated included essential food items such as rice, sugar, fish, chicken, vegetables, flour, cooking oil and eggs and, livestock supplies such as cows and goats.
The government also proposes to exempt GST, among others, for public transport, private education services, financial services and land for agricultural, residential and other general use.
It said taxable supplies of goods and services will be subject to a standard rate while businesses are eligible to claim input tax credit on business inputs.
"A threshold of RM500,000 in annual sales for the purpose of registration has been proposed, thus, excluding small businesses from collecting GST," the MOF said.
The report also said the government has taken steps to ensure a smooth and orderly implementation of the GST via the Price Control and Anti-Profiteering Act 2011, fair trade practice under the Competition Act 2010 and publish a shoppers' guide list which covers about 944 items in the consumer price index.
It said the ministry and the Royal Malaysian Customs Department are also actively involved in organising nationwide seminars, workshops and roadshows to create greater awareness on GST among professional groups, government agencies, business communities, consumer groups and non-government organisations.
"To-date, more than 4,600 awareness programmes involving 200,000 participants have been conducted nationwide together with other agencies, trade associations and non-government organisations," it said.
The GST is a broad-based consumption tax which is paid when goods and services are purchased or consumed.
In some countries, it is also known as the value added tax and is imposed on the value-added of goods or services at each stage of the production and distribution chain.
If implemented, the GST will replace the sales tax and services tax introduced in 1972 and 1975, respectively.-- Bernama