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Sme Towards Implementation Of Gst Essay

6014 words - 25 pages

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 ...view middle of the document...

It is generally perceived that with the difference of 4% between the SST rate and GST rate, the purchase price of supplies would drop accordingly and will increase demand. In practice this is not the case because operating cost remains high or same; hence price reductions will be minimum. Furthermore, many private businesses have already increased their prices, of which thousands of SMEs are dependant.

Government protects small and medium businesses, known as SMEs whose annual turnover is below RM500000 as they are not required to charge GST on their goods and that may attract customers to them. But the low business volumes put them at a disadvantage against supermarkets that command very low wholesale price. In the end, people will shop at supermarket because their prices, even with GST, are still lower than those in small businesses. In reality, the retailers are subject to GST when they purchase goods from the manufacturers and naturally will pass it on to the consumers. That is why even those businesses with an annual turnover below RM500,000 are required to register for the GST if they want to charge GST to their customers.The government also protects big companies and high-income earners by not increasing corporate tax and individual income tax. Those manufactures are not paying for the GST as they are allowed to claim back the input tax credit from the government. Moreover, part of the income that has been subjected to income tax by the middle-income earners will be taxed again by GST if it is spent on non-exempt goods and services, thus resulting in double taxation of the income. The worst case scenario is that countries implemented GST will raise the tax over the years and some of them are now charging as high as 27%. It is therefore imperative to understand the concern of SMEs in terms of GST implementation.

While one fully supports the position that cost savings be passed on immediately, the RMCD seems to be saying more.Many small businesses currently repricing for the GST are in an extremely difficult position. The problem arises from the tension between the guidelines and the apparent lack of flexibility in their interpretation, and the need for businesses to set their prices on 1 April irrespective of whether they can be sure about their cost structure.For most operators, cost savings will not be immediate, as many embedded costs are difficult to identify and will be realised after 1 Apr. Many business operators, particularly small businesses, have reported that their suppliers are either unable to provide them with a price for supplies after 1 Apr or are not reducing their pricing as expected. The RMCD has recognised this fact by stating that it expects all cost savings to be obvious within six months as savings are passed through the supply chain.

However, to ensure that the full benefits of reform are immediately passed on to consumers, there is an expectation evident in the guidelines that anticipated cost savings...

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