Thursday, 16 July 2015

Why Malaysia GST start at 6% and not 5% or lower?

Ever wondered why the GST start with a 6% and not 5% or lower? Well, there are many versions and reasons cited by the government and economist in the many articles that was publish pre and post GST implementation. 

Here I find an interesting twist to this question. As I was going thru my first bank statement after the GST was implemented; I noticed that for each Interbank Giro Transaction; there was a charge of 10 sen per IBGT and on top of that a GST is imposed for each transaction which amount to 0.01 sen as shown in my bank statement; making a total deduction of 11 sen per transaction. Mathematically calculated the GST for this transaction; with a GST of 6%, it should have been 0.006 sen. Because of rounding up for each transaction, it round up to 1 sen.

There is an extra of 0.004 sen that the bank have collected. Although to many this amount is very insignificant but multiply it by thousand or millions of transaction that each bank collect, the amount can be very significant as highlighted below:


Question is where; who gets to keep this extra 0.004 sen. We as consumers did not get any refund from the bank while the Kastam should not be receiving this amount from the bank as it is an overpayment of GST and the bank should also not be keeping this money as it is in violation of overcharging for the GST?

So, I really would like to know from the authority where did this extra GST collected goes to. For me, this is one case that I have found out, I am not sure how many other transactions have this rounding up of GST. 

To answer the above question; let's look at the following computation. Mathematically calculated anything above 5 (will be rounded up while anything below 5 will be rounded down as highlighted at the illustration below if the GST was 4%; technically there will be no GST for this Interbank Giro transaction.


So, you know another reason why the GST is not set at 4% or lesser than 5%. If the GST was at 5% there will be no rounding up or down issue.