The Acceptance and Awareness of Small and Medium Enterprises towards Implementation of GST in Kuala Lumpur and Johor Bahru

CHAPTER ONE – INTRODUCTION

1.1 Background of the Study

The production of a good or service, in general, goes through several stages before the final product or service reaches the consumer. To illustrate, if the production and distribution process is divided into three basic stages of manufacturing, wholesaling and retailing, value is added at each stage through further processing, packing or other improvements before it reaches the consumer via the retailer. The GST is a tax on the value added to the output or service at each stage of the process. In its generic form, the GST is a value-added tax (VAT). These terms are used interchangeably in this note.

A multi-stage tax like the GST protects tax collections through two built-in features. First, the multi-point collection and invoice trail minimizes tax avoidance and tax evasion. This is because the need to issue and obtain invoices to claim tax deductions for taxes imbedded in inputs from a previous stage of the production chain fosters greater compliance. Second, the GST is better able to protect revenue from tax evasion by retailers as compared to a single-stage sales tax imposed solely at the retail sales tax (RST). This feature, however, comes with greater administrative and compliance costs.

1.2 Problem Statement

The introduction of GST in Malaysia has called for many arguments from various parties including academics, professionals and the citizens (the potential GST payers) on how GST affects the operating cost of business. The government tried to convince Malaysians that the GST will not burden them and various measures are been taken by the government to control the increase in