He said under the department's GST Guide on Hire Purchase and Credit Sale, only the principal amount, and not the interest component, was subject to the six per cent GST.
According to the guide, "the liability for GST on the taxable supply arises at the commencement of the HP (hire purchase) agreement or credit sale and not continually throughout the period of the agreement. There is no liability for GST on the financial supply component of that hire purchase or credit sale as it is an exempt supply."
"This generally means that where the credit or interest component is shown separately and disclosed to the recipient, it is not subject to GST while the principal amount is," said Subromaniam.
Consumers, especially those in the low- and middle-income groups, have of late expressed the fear that they may have to pay higher monthly instalments for household furniture and appliances purchased under easy payment schemes or the flexi-credit system following the implementation of the GST in April.
GST TO BE COLLECTED UPFRONT
Subromaniam said the GST of six per cent would be collected upfront, that is, when the customer was paying the deposit or first payment for the item purchased.
He said the people's fear of higher monthly payments was misplaced because, on the contrary, they may even find themselves paying less after the GST was introduced.
"Traders and retailers will be able to claim their input tax...so they will have to pass whatsoever cost savings they have made to their customers by selling their goods cheaper," he told Bernama recently.
To illustrate his point, he said under the current 10 per cent Sales and Service Tax (SST) regime, a television manufacturer might price his products at RM2,200 each, including SST of RM200.
"The manufacturer will sell the TV sets to the retailer at RM2,200 each. Assuming the retailer's profit is RM200, then the final price of each TV set will come to RM2,400.
"On the other hand, under the GST, the manufacturer's price will be RM2,120, which includes six per cent GST amounting to RM120.
"But since the retailer can claim back the GST, his cost is still RM2,000. So, including his profit of RM200 and GST of RM132, which the customer has to pay, the final price comes to RM2,332.
"Just compare the prices...under SST, the TV is priced at RM2,400 and under GST, at RM2,332. So, which is cheaper?" Subromaniam asked.
INPUT TAX CLAIMABLE
Hence, he added, there was no way consumers would be required to pay higher instalments for household items purchased through the flexi-credit scheme after the implementation of the GST.
According to the Customs Department's GST Guide for Input Tax Credit, input tax refers to the GST that business owners incur on any purchase or acquisition of goods and services, and they are allowed to "claim as credit on any GST incurred on purchases that are inputs to the business."
Chartered Tax Institute of Malaysia chairman, S.M. Thanneermalai, urged consumers not to worry about prices of furniture and electrical appliances going up, post-GST implementation.
"Whether they are going to buy with cash or on an instalment basis, the GST will have to be paid upfront and no additional tax will be imposed on the monthly payments," he said.
Meanwhile, Courts (Malaysia) Sdn Bhd (Courts Malaysia) Chief Executive Officer, Tim Luce, said he expected consumers to rush to purchase household goods just before the implementation of the GST in April.
"People are likely to rush to buy household products as they think that the prices will increase after GST is introduced," he said.
SALES MAY PEAK JUST BEFORE GST IMPLEMENTATION
Court Malaysia is one of Malaysia's largest retailers of furniture and electrical goods and offers in-house credit facilities like the Courts Flexi Schemes to allow customers to pay for their purchases in instalments over a period of up to 60 months.
Luce said sales were expected to peak just before the introduction of the consumption tax, followed by a lull as consumers studied the after-effects of the GST.
"However, we do not anticipate this lull to last very long as consumers will soon become more familiar with the GST and resume their normal shopping habits," he said.
On the impact of the GST on Courts Malaysia's goods and services, Luce said its promotions and credit offerings would be tailored in such a way that they remain affordable to the consumers.
"In fact, we are working with our suppliers and vendors to try to bring our prices down further," he added.
-- BERNAMA By S. Kisho Kumari
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