When the 6% GST was introduced last week, the response it received was more than overwhelming with mixed reactions towards it. Fixed at a rate of 6%—replacing the 6% Service tax and 10% Sales tax—consumers will soon have to pay GST on items at every stage of the supply chain as opposed to the current two taxes that are chargeable once at different levels of the supply chain. The government was also very pleased with itself for having certain items exempted or zero-rated under the GST, thinking they have their bases covered in pleasing the people, who were already sceptical of the tax system way before it was announced. As for the reason for having the GST, the explanation was simple: to help Putrajaya reduce the budget deficit. But many asked, at what cost? Prior to the announcement, the government indicated the rate of the GST to be at 4%, and at the time, many argued that it will only burden the lower and middle income groups. After the official announcement, some were surprised to find out that the GST will be introduced at 6%. The Federation of Malaysian Manufacturers was one who thought the 6% rate is much higher than anticipated. “We note that regional countries with higher rates of GST had increased their rates incrementally over a period of time, for example Singapore took nine years to increase their GST rate from 3% to 4%, and another four years to 7%,” it explained. That being the case, the FMM said that the current rate should be maintained for not less than five years from the date of implementation. Even BDO Tax Services head of tax advisory David Lai said it is better to introduce the GST at a lower rate of 4% to 5% to encourage wider public acceptance in Malaysia. Lai also stated that the government should maintain the GST rate for at least three years before making any adjustments. Furthermore, he added that increases in the GST rate should only be contemplated after the government has properly studied inflation effects, as experience of other countries suggests that any inflationary effects are expected to be short term and should taper off.But why a 6% rate?The government’s decision at the end of the day was oddly similar to what PricewaterhouseCoopers Taxation Services suggested leading up the Budget announcement. Senior executive director Wan Heng Choon said the 6% rate introduced is equivalent to the current rate of service tax but lower than the current sales tax. He said if the government had introduced the 4% GST, it would render the revenue neutral, and there would be no point in having it. Wan also said the government should allow businesses a grace period of 18 months after announcement so they could get ready for the new tax system. Prime Minister Datuk Seri Najib Razak had announced the implementation of the GST to be in 17 months. OCBC Bank economist Selena Ling also said the 6% GST is a positive development as it will broaden the revenue base and help to narrow the budget deficit. Ling added that a 4% GST rate would have been largely revenue-neutral while the 6% rate bodes well in terms of signalling the government’s serious intent to improve its fiscal housekeeping.Confusion around GST calculationWhile the rate at which the GST was introduced has more haters than lovers, some of the frustration among citizens lies in the fact that most find it hard to grasp the calculations and applications of the new taxation, compared to the SST. The simplest of explanation given to calm the nerves is the more one consumes, the more GST they would pay. This in turn implies that those with higher income, who consume more, would pay more tax. But, it isn’t quite as simple as that. The difference lies in the taxation rate itself. The current 6% service tax rate of an item will have no difference once the 6% GST is imposed. For items that have the current 10% sales tax rate, those items would become cheaper once the 6% comes into play. But for items that are not currently taxable by the SST and might be by the GST, prices will only become higher. Here is where Serdang MP Ong Kian Ming said the Government isn’t quite revealing the whole story surrounding the GST. He said the argument that Malaysians will be paying less tax under GST compared to SST is an empty lie, because the SST taxation has more exempted items in its list (250 pages) compared to the newly implemented GST (21 pages). He reportedly said the number of items taxed under SST were fewer than GST, including many non-luxury items like milk, coffee, tea, mineral water, canned food, stationary and school bags among others. Ong also explained that the current sales tax was restricted to certain restaurants and professional services by accountants, architects, vehicle repair centres, and other service firms, while the GST might be charged onto certain tuition centres and hair saloons. “The truth is that GST will increase prices of a majority of goods and services and the financial burden to the rakyat will be increased,” said Ong. The GST will take effect on 1 April, 2015.