ECRL - Impose GST but arbitrage the cost difference
Saleh MohammedPublished: Apr 18, 2018 4:54 PM | Updated: Apr 19, 2018 4:45 PM
LETTER | The government should exploit the difference and in the process pocket a risk-free return.
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Many in Malaysia do not seem to understand how our GST system works. 1. From CCCC's viewpoint, it makes no difference whether GST is exempted or not. 2. If CCCC is NOT exempted, it will bill ECRL 6% gst on $55b=$3.3b. ECRL will pay it to CCCC which will then pay it back to Customs & Excise. So, CCCC's net gst cost is zero. Like all businesses, it is only an unpaid gst collecting agent for govt. 3. From the govt viewpoint, it will pay out $3.3b via ECRL. In turn it will collect back $3.3b from CCCC via C&E. So, net income to govt is zero. This will happen only because, in this instance, the govt will also be the "final consumer". 4. So, if not exempted, CCCC income will be $55b and ECRL/govt cost $55b.5. If CCCC is exempted from charging gst, it will bill ECRL $55b and collect $55b. As in (4) above, CCCC income remains $55b and ECRL/govt cost $55b.6. So, if it it makes no difference to either party whether gst is charged or not, why bother? 7. Simple. Firstly, it will save a lot of paperwork. Also, without exemption, govt will have to borrow $3.3b to pay gst to CCCC. This will be a short-term loan as govt will receive the $3.3b back from CCCC. However, there will be a timing difference, as CCCC will only be required to pay the gst to C&E 1 month after its gst quarter ends. The cost of govt borrowing $3.3b at say 4% per year for 90 days, will be $33 million. Is that not a good enough reason for exemption? 8. Similarly, it makes no differences whether local suppliers/contractors to govt projects are exempted or not from gst. The suppliers, provided they are registered for gst, can claim back their gst on expenses (Input Tax) by deducting it from the gst on their sales billings to the govt (Output Tax) and remitting net to C&E. 9. In the final analysis, the govt should standardize the gst system and exempt all suppliers/contractors from being charged/charging gst for govt contracts for a ‘Win, Win’ compromise.
A most well thought out observation.