OVERVIEW OF THE IMPACT OF GST IN MALAYSIA
With the coming implementation of Goods & Service Tax (GST) in April 2015, many Malaysians are concerned with what this bodes for prices in general. It is inevitable that prices will be affected.

There will be a positive impact on the economy due to the following:
(i) Reduction in business costs: (a) Special schemes to alleviate cash flow problems (b) Credit offset mechanism (c) Can claim the input tax due based on the invoice produced
(ii) Lead to more competitive pricing
(iii) Makes our export more competitive as exports are to be zero-rated
(iv) Increase in Gross Domestic Product
(v) Reduce shadow economy activities
(vi) It is a tool to manage the economy eg tourist refund scheme is proposed as a means to boost the tourism industry and tourism spending in the country, exports are zero-rated to make our goods more competitive globally.
There might not be a reduction in consumption due to:
(i) Prices of certain goods and services might be lower
(ii) Change in consumption pattern. GST works on the affordability concept. Consumers have to decide on which goods or services to buy and GST is only incurred when the goods or services are consumed. They may divert more of their expenses towards essential goods and services rather than on luxury goods
(iii) A lot of basic necessities are not subject to GST
(iv) GST is a replacement tax
(v) Input tax credit mechanism should reduce business cost.

The benefits will rakyat get:
The Government had conducted social impact studies which shows that consumers will most likely bear some slight additional tax burden depending on their consumption pattern and the rate of GST to be fixed. To ease the increase in tax burden, tax and non-tax package may be given. However, basic items such as rice, poultry, meat, vegetable, flour, cooking oil, sugar, residential and agricultural properties, education and health services will not be subjected to GST.

What benefit do businesses get from GST?
Our studies have shown that there will be a reduction in the business costs due to:
(i) GST paid on inputs is claimable
(ii) Exports are zero rated
(iii) There is no matching of input tax and output tax
(iv) The existence of special schemes to alleviate cash flow.

Will GST effect the small businesses?
Implementation of GST may only affect the small-businesses like the night market operators if their annual turnover exceeds the prescribed threshold which require them to be registered under GST.

What GST impact to imported good?
At present, imported goods are subject to import duty and sales tax unless exempted. Under GST, imported goods will still be subject to import duty but sales tax will be replaced with GST. As to whether the imported goods will be cheaper or more expensive will depend on a number of factors besides the GST rate.

How will the implementation of GST affect individual?
As mentioned, the replacement of Sales and Service Tax with GST is intended to be revenue-neutral to the government's coffers, so in theory, to consumers this may represent a minimal effect to the aggregate prices of everyday goods and services. Lets look at 3 scenarios to see what it means for prices, (1) for items charged with Service Tax, (2) for items charged with Sales Tax, and (3) for items with no Service or Sales Taxes:
However, the obvious concern here is to make sure that businesses do not take advantage of just the fact that GST has been introduced as a reason to raise prices of goods and services indiscriminately. To this end, the Anti-Profiteering Act has been tabled to enable enforcement against such practices. In theory though, the multi-stage tax nature of the GST should allow the Customs department to aggregate pricing information far more accurately than they do currently, the implied monitoring of this should serve as a deterrent to unscrupulous businesses (will wait and see how things pan out!).

In the current tax regime, the 10% Sales Tax (on manufacturing and imports) and 6% Service Tax (on the F&B and professional services industry) is collected by one party (usually the seller) and passed on to the tax authorities.
For example, in the previous 6% Service Tax regime, when you buy a cup of coffee from Starbucks that says RM15 on the menu, you pay RM15.90 (including the current Service Tax of 6%). Starbucks will keep RM15 and pass on RM0.90 to the tax authorities.
In a GST regime (6% GST in this calculation), the following happens:
1. Starbucks buys the coffee beans from the wholesaler to make your cup of coffee for RM10 (RM10+ 6% GST). The Wholesaler keeps RM10 and passes on RM0.60 from Starbucks to the tax authorities.
2. You buy that cup of coffee from Starbucks which the beans were used to make, and pay RM15.90 (RM15 + 6% GST). Starbucks now keeps RM15 and passes on RM0.30 to the tax authorities (RM0.90 - RM0.60). The reason why Starbucks only passes RM0.30 to the tax authorities is because they have effectively already 'paid' RM0.60 in tax earlier on the first RM10, and only RM0.30 tax is left to be paid on the RM5 "value-add".

GST impact on home prices To properly appreciate how GST will affect home prices, it is necessary to first understand how GST works. (Click here for a detailed but simple-to-understand explanation of how GST in Malaysia works). Aside from GST, one must also have an understanding of the Sales Tax, which is the existing tax scheme affecting the property sector. GST will supplant the Sales Tax come April 2015. Tax Scheme on Residential Property – The Similarities In comparing both tax schemes, we have to first identify their similarities. One similarity between GST and the existing Sales Tax scheme is that no taxes are charged or will be charged to the consumer on the purchase of a home / residential property. For GST, residential properties fall under the “Exempt Rated” basket of goods. (But do take note that GST will be charged to the consumer for commercial property purchases as commercial properties are “Standard Rated”). However, during the creation of the final product (also known as the input stage in tax parlance), under both tax schemes, developers would incur taxes during procurement of their inputs and materials. And this is where the differences start to become apparent between both tax schemes. The tax rate for inputs and materials vary between GST and Sales Tax. Sales Tax VS GST for Residential Properties – The Differences Based on the Sales Tax Act of 1972, basic building materials such as bricks, cement and floor tiles fall inside First Schedule Goods, in which all the goods in this category will not be subjected to sales tax. Meanwhile, other building materials fall inside Second Schedule Goods, in which all the goods in this category will only be charged sales tax of 5%. Under the new GST implementation, all building materials and services (E.g. Contractors, engineers) will be subject to GST with a standard rate of 6%. This will invariably raise the production cost for developers. If you understand how GST works, you will notice that in most cases, the additional tax cost is simply passed on to the final consumer (Standard-Rated goods), or is claimed back from the government (Zero-Rated goods). But in this case (Exempt-Rated), the additional tax cost is borne by the party before the final consumer – The developer. The developer does not have a next “victim” in the supply chain. This seems like good news for home buyers as they do not have to pay GST when purchasing a home. However, one should not be too happy about this. It is no stretch of the imagination to think that developers would try to build in the additional tax costs into the final sale price implicitly. Before & After GST – A Comparison The tables below show a comparison between the cost of a new property before and after GST. Certain taxes and costs leading up to the sale to the final consumer have been simplified for this purpose. Also, an assumption is made that developers are able to transfer 100% of all incurred tax costs over to the consumer via the sale price. Conclusion: As a home buyer, it pays to know what the implementation of GST might bode for home prices moving forward. If you skipped the entire article, here are all the key insights in a nutshell: With GST, there should be a once-off increase in property prices across the board. While developers may not bill home buyers for GST, they could transfer the costs implicitly via the sale price. The overall price increase for new residential properties could be marginally lower than that for new commercial properties. The secondary home market should see a knock on effect in prices. Armed with this knowledge and our home loan products, you can make a better decision on when to purchase your home.