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GST

6% Service Tax Suspension: Government Should Go All The Way To Exempt Prepaid From Service Tax

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While I welcome the latest decision to suspend the price hike of prepaid charges due to the 6% service tax as announced by telecommunication companies, this must be viewed cautiously by the public. Does this mean the price hike will be delayed until after the general election as presumably instructed by the Prime Minister?

I also maintain that the way Dato’ Seri Najib Tun Razak has managed the situation sends a very negative signal to the business community. Many other businesses which are currently charging the 6% service tax to consumers now must be getting worried that they will be the next to get a telephone call from the Prime Minister’s Office asking them to absorb the service tax.

Dato’ Seri Najib Tun Razak could have improved his image permanently if he had the courage to announce the exemption of prepaid telecommunication services used by the majority of lower income group and young people from the 6% service tax. This would have effected a permanent lowering of telecommunications charges and go a long way to reduce the escalating cost of living.

Without the 6% service tax, telecommunication companies have no other option but to lower the tariff for prepaid customers, since their prepaid costing structure at the present must have factored in the service tax.

The Prime Minister does not have to wait for an elaborate and expensive laboratory managed by PEMANDU to help lowering the cost of living of the people. He just need a little bit of common sense and he can start showing he has the common sense by exempting prepaid customers from the service tax.

The suspension of the price hike is yet another demonstration of the real power wielded by the public when there is a check and balance in the country. Pakatan Rakyat’s strong presence in Dewan Rakyat has persistently held up the right of the public to pressure the government to reverse unpopular and wrong policies over the last three years since 2008.

MOHD RAFIZI RAMLI

DIRECTOR OF STRATEGIES

12 SEPTEMBER 2011

GST

FAQ on Service Tax

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I realise a lot of us are not used to the different concept of taxes, especially service tax in light of the latest uproar on the 6% service tax on telecommunication charges.

I used to write a lot of course notes from my time as an in-house tax trainer. It so happens that one of my stronger tax areas is indirect taxation; which also covers service tax, goods tax and Goods and Services Tax (GST, in other countries it is called VAT).

I manage to dig quickly from my course notes, so hopefully the brief notes here will help your understanding on the service tax. if there is anymore question, please post here or email me, I will be glad to answer.

WHAT IS A SERVICE TAX?

Service tax is a consumption tax levied on services, which are prescribed by the Minister as taxable services under the Service Tax Act 1975. Service tax is charged and levied on any taxable service provided by any taxable person.

WHAT IS TAXABLE PERSON?

Taxable person is defined as any person who is prescribed to be a taxable person and taxable service is taken to mean any service, which is prescribed to be a taxable service.

(Note: Ha2 this is how tax law is usually written. Basically it means everyone and everything that the Finance Minister so decides to levy. Jadi kalau Dato’ Seri Najib bangun tido dan nak kecualikan prabayar dari cukai perkhidmatan, maka tiadalah cukai perkhidmatan atas prabayar)

WHAT’S THE DIFFERENCE BETWEEN DIRECT AND INDIRECT TAXES?

Direct taxes are taxes you pay on income and profits. You have to earn a certain level of income and profits before you become taxable. Examples of direct taxes are personal income tax, corporation income tax and petroleum income tax.

If your business do not make profit or your income is below the taxable level, you don’t pay taxes. It is meant to tax the share of wealth created in the economy.

Indirect taxes are taxes you pay irrespective on level of income or profits, hence why it is also usually referred to as consumption tax. You pay when you consume or use the service or buy something, irrespective whether you are poor or the richest person in the world. Examples are sales tax, goods tax, duties or hybrid forms of taxations; and all encompassing consumption tax such as GST/VAT.

Indirect tax is designed to tax consumption. One of the ways in which it can deliver a result is by targeting certain services or goods or type of activities – the level of taxes prescribed can have an impact on the activity/consumption.

But generally indirect taxes are also used side by side with direct taxes because its collection is more effective. Since it has to be paid by everyone, it is easier to administer and less complicated.

SO WHAT ARE TAXABLE SERVICES IN MALAYSIA?

Service tax was initially charged and levied on prescribed goods sold or provided either by or in any prescribed establishment and on prescribed services provided by or in any prescribed establishment or prescribed professional establishment. Over the years, amendments to the act and its regulations have increased the scope of service tax by increasing the number of prescribed services and prescribed establishments and prescribed professional establishments.

The main categories of taxable services are:

  1. Consultancy services
  2. Management services
  3. Employment services

However, over the years the government has increased the list of services that fall under the taxable services. As at October 2010, the services provided by the following companies/establishments will attract service tax payable to the government:

  1. Operators of hotels with more than 25 rooms (subject to some exclusions)
  2. Operators of restaurants, bars, snack-bars, coffee houses or places located in hotels with more than 25 rooms
  3. Operators of restaurants, bars, snack-bars, coffee houses or places located in hotels with 25 rooms or less
  4. Operators of restaurants, bars, snack bars, coffee houses or places located outside hotels (subject to some exclusions)
  5. Operators of food courts
  6. Operators of night-clubs, dance halls and cabarets
  7. Operators of approved health-centres and massage parlours
  8. Operators of private clubs
  9. Licensed private hospitals
  10. Insurance companies
  11. Telecommunications companies
  12. Approved forwarding agents
  13. Operators of parking space for motor vehicles
  14. Courier-services companies
  15. Operators of motor vehicle service and/ or repair centres
  16. Licensed private agencies
  17. Employment agencies
  18. Public Accountants
  19. Advocate and Solicitors
  20. Professional Engineers
  21. Architects
  22. Licensed or Registered Surveyors/Registered Valuers, Appraisers and Estate Agents
  23. Consultants (subject to some exclusions)
  24. Private veterinary clinics
  25. Hire-and-drive car and hire-car service companies
  26. Management companies
  27. Advertising companies
  28. Operators of golfing and golf-driving ranges

HOW MUCH DO WE PAY IN TAX TO GOMEN THEN?

Well, the rate has been 5% all along, until our mendahulukan rakyat Prime Minister increased it to 6% effective 1 January 2011.

It is very easy to estimate the total revenue from service tax – by estimating the size of revenue of the services provided that are taxable. A good example is from one of the largest contributors i.e. telecommunication & broadcast industries in Malaysia.

The 2007 Annual Report of SKMM estimates that the combined revenue of the telecommunication companies and ASTRO stood at RM35 billion. Assuming everything is taxable for service tax (which is a fair assumption), the government collected up to RM1.7 billion in service tax in these two sectors alone.

A fair estimate of service tax collection is in between RM4 billion to RM6 billion annually.

These are not monies paid by companies to the government. These are taxes paid by rakyat, collected by the companies and passed to government. Companies can say that they absorb or whatever, but the truth is they always keep their margin and pass the tax back to the people.

GST

6% Service Charge: Prime Minister Should Not Point Fingers To Others

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Dato’ Seri Najib Tun Razak’s reaction to the latest uproar against the 6% service tax on telecommunication services is expected. It has become his trademark that every time his own policy ignites strong opposition from the public, he will wash his hands and blame others instead.

It is unbecoming of a Prime Minister to plead ignorance that his government’s decision to increase the service tax to 6% effective from 1 January 2011 has nothing to do with the telecommunication companies’ decision to pass the tax burden to consumers.

For a start, the public has to be clear that the 6% service tax is a government tax levied on all services specified by the government. The service tax contributes directly to the government coffers and not a single sen is retained by any companies, which only acts as a tax collector. It is estimated that the government collects up to RM750 million in service tax each year from the prepaid customers all these years.

While I am of the opinion that it is obscene for the telecommunication companies to stop absorbing the service tax after the tax increase (considering the obscene profits enjoyed by these companies), it is also prudent for the public to fully understand the whole costing structure of the prepaid markets and the effects of the service tax increase on its costing.

The Prime Minister’s behaviour, however, deserves a strong rebuke and reprimand from the politicians and business leaders alike. A government cannot be selective in its taxation policies. It cannot pass a taxation act that clearly spells out how companies shall charge a service tax on 6% on services they provide in a form of a consumption tax; yet quietly expects the companies to absorb the tax.

This behaviour will create havoc in the administration of our country at different levels and sectors.

Philosophically, it dilutes the specific reasons, targets and means of using different taxation approaches to manage the economy effectively. When the Prime Minister who also happens to hold the Finance portfolio appears to be confused on the distinct features of an indirect tax (service tax) and a direct tax (tax on company profits), it is not a surprise that he struggles to build a market confidence in his policy.

Administratively, Dato’ Seri Najib Tun Razak’s behaviour suggests that he expects different treatments for different companies and sectors although the taxation law is standard across. If he expects the 6% service tax is absorbed by the telecommunication companies; he should expect that all other daily household services including Astro, KFC and restaurants to also absorb the 6% service tax. While he is at it (on his populist drive), he might as well cancel the 6% service tax altogether since his insistence that companies absorb the service tax renders the service tax useless.

In the end, the public understands that it is his decision to increase the service tax to 6% in January that could have led to increases in cost. If he is really a responsible Prime Minister, he will announce in his next budget the exemption of daily household services including paid television broadcast services (Astro), telecommunications and restaurants from service tax.

That is the behaviour expected of a principled Prime Minister, not one who always point fingers to others.

MOHD RAFIZI RAMLI

DIRECTOR OF STRATEGIES

10 SEPTEMBER 2011

GST

Cukai Perkhidmatan 6%: Perdana Menteri Perlu Bertanggungjawab

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Kenyataan Dato’ Seri Najib Tun Razak yang menyalahkan syarikat telekomunikasi atas kenaikan harga akibat cukai perkhidmatan 6% tidaklah mengejutkan. Kebelakangan ini, tindakan beliau yang suka menuding jari kepada orang lain apabila keputusannya sendiri tidak disukai rakyat sudah menjadi tabiat.

Adalah tidak patut dan memalukan apabila seorang Perdana Menteri menyatakan beliau tidak tahu menahu mengenai kenaikan kos prabayar yang ditanggung rakyat, sedangkan beliau sendiri dengan gahnya mengumumkan kenaikan cukai perkhidmatan dalam pembentangan belanjawan 2011 di Dewan Rakyat tahun lepas.

Rakyat harus sedar bahawa cukai perkhidmatan 6% ke atas perkhidmatan telekomunikasi termasuk kad prabayar adalah cukai kerajaan. Cukai ini adalah milik kerajaan sepenuhnya dan tidak ada satu sen pun yang masuk poket mana-mana pihak lain, yang hanya bertanggungjawab mengutip cukai ini bagi pihak kerajaan. Setiap tahun, dianggarkan kerajaan mengutip sehingga RM750 juta daripada pembelian kad prabayar oleh rakyat Malaysia.

Walaupun saya berpendapat keputusan syarikat telekomunikasi untuk menaikkan kos kad prabayar untuk menampung kenaikan cukai perkhidmatan adalah tidak berpatutan kerana keuntungan mereka yang begitu tinggi, kita juga perlu adil dengan memahami bagaimana kos bagi segmen prabayar meningkat apabila cukai perkhidmatan dinaikkan.

Namun, tabiat Perdana Menteri yang suka menuding jari dan tidak mahu mengambil tanggungjawab perlu ditegur dengan keras oleh ahli-ahli politik dan pimpinan golongan niagawan. Kerajaan tidak boleh berdolak dalih dalam melaksanakan dasar percukaiannya. Jika ia telah meluluskan undang-undang yang menetapkan semua perkhidmatan dikenakan cukai 6% sebagai satu bentuk cukai penggunaan, ia tidak boleh secara diam-diam berharap cukai itu ditanggung oleh syarikat, kerana cukai perkhidmatan adalah satu bentuk cukai yang ditanggung oleh rakyat bagi tujuan mengawal penggunaan.

Tabiat sebegini akan menghuru-harakan keadaan. Ia akan menyebabkan pentadbiran percukaian dan ekonomi negara kucar-kacir kerana kaedah percukaian yang berbeza sudah hilang maknanya; apabila Perdana sendiri yang keliru di antara tujuan dan fungsi di antara cukai langsung (ke atas keuntungan dan pendapatan) berbanding cukai tidak langsung (ke atas penggunaan melalui cukai perkhidmatan dan barangan). Maka tidak hairanlah Perdana Menteri sehingga sekarang tidak berjaya mengembalikan keyakinan pasaran kepada dasar dan kepimpinannya.

Tabiat Dato’ Seri Najib Tun Razak juga berbahaya kerana ia memberi gambaran syarikat berlainan akan mendapat layanan berbeza walaupun undang-undangnya sama. Jika beliau mahu syarikat telekomunikasi menanggung cukai perkhidmatan 6%, beliau juga perlu berlaku adil kepada semua. Makanya, beliau wajar memberi arahan agar semua syarikat lain dari pelbagai industri, termasuklah industri penyiaran (Astro) hinggalah kepada industri makanan (KFC dan restoran mamak) juga perlu menanggung cukai perkhidmatan itu.

Alang-alang beliau mahu menjadi jaguh rakyat, lebih baik beliau menghapuskan saja cukai perkhidmatan kerana beliau tidak ada hak untuk memberi arahan syarikat mana perlu menanggung cukai perkhidmatan. Tindakan itu akan menyebabkan sudah tidak ada beza di antara cukai perkhidmatan dan cukai pendapatan.

Hakikatnya, rakyat harus sedar bahawa tindakan Dato’ Seri Najib Tun Razak menaikkan cukai perkhidmatan kepada 6% berkuatkuasa 1 Januari 2011 memainkan peranan dalam kenaikan kos; termasuk kos prabayar.

Jika beliau mahu menjadi seorang Perdana Menteri yang bertanggungjawab, beliau sepatutnya mengumumkan pengecualian daripada cukai perkhidmatan semua perkhidmatan harian yang ditanggung sebahagian besar rakyat; termasuklah perkhidmatan siaran TV berbayar (Astro), telekomunikasi dan restoran.

Itu lebih bertanggungjawab daripada terus menuding jari kepada orang lain apabila keputusannya dibangkang rakyat.

MOHD RAFIZI RAMLI

PENGARAH STRATEGI

10 SEPTEMBER 2011

Reformasi

Sout al Horeya/Sound of Freedom

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I had the privilege to take some time off from the hectic schedule (what more after Eid-ul-Fitri) to join a group that brings together representatives of democratic forces from all over the world.

The exchanges give me the comfort that no matter how insurmountable we feel the task is at our hands; our brethren in other parts of the world fighting against corruption, autocracy and for justice have similar challenges with less resources at their disposal. That renews my faith that change is inevitable; it is a matter of time.

That brings me to an interesting juncture – who is responsible to bring change? Is change an exclusive turf of politicians? If we despise politicians so much, what do we do to become a change agent ourselves?

I was lucky that we were joined by a friend from Egypt; fresh from the revolution. She shared with us one song that had united the people and provided them a pillar of comfort that they would no longer fear Mubarak and the oppression. Beautiful words, beautiful clips and beautiful melodies.

What is more beautiful is the origin of the song – written by an underground artist and replicated and spread by hundreds of thousands of Egyptian youth.

Change is not an exclusive turf of politicians. Indeed, it is unfair to put the sole responsibility for change on the shoulders of politicians. I look forward to the near future when the forces of change in Malaysia will be joined in greater ranks and numbers by artists, musicians, social activists, youth and people who previously were disinterested in politics.

Enjoy the song, be amazed at the power of one song that united a country and defined a decade.