Friday, November 6, 2009

What is the big deal about GST, in the eye of a foodie?

What is the really big deal about GST? (in the foodie world)

Recently, our dear Prime Minister sneaked a paragraph in the budget speech about the dreaded GST.

Newspapers columns complained and complained. What? Service tax, service charge and now GST?

Matter of fact, i was listening to BFM and the interviewer asked, how would GST affect your business? (the interviewee was the MD of ChasWood Resources, operator of TGIF, Italiannies, Laundry and etc etc)

It is apparent even the interviewers have the lack of knowledge of GST (imagine the man on the streets!) because one would know what the obvious answer, if they had a clue what GST is all about.

So just in case, any readers out there wanting to carry a banner around the street telling people how bad GST is because it might increase the prices of food, think twice after you read on.

The current situation

In our restaurant bill, the components are as follows:

Food - RM XX
Service tax (5%, if restaurant income more than RM3 million) - RM XX
Service charge (10% appears to be the industry norm) - RM XX

Total - RM XXX

Now, service tax is the "tax" that the restaurants collect and pay the government.

Now, service charge goes into the pockets of the restaurants and if they are generous, they fork out some for their staff.

Come, GST..(which replaces Service Tax, dear interviewer, just in case you didn't know you made a blunder on radio)

Food - RM XX
GST (X%) - RM XX
Service charge (X%) - RM XX
Total - RM XXX

On first sight, GST does not make a difference to you and i, unless the rate is more than 5%. Apparently the figures flying around is 4% (although feng shui wise, i don't think it is such an "ong" number, but i will stick with 4 if they decide to go with 8%)

Go one step further, certain items like soft drinks are currently subject to sales tax of 10% and you pay service tax of 5% on it, how about when GST comes in?

Sales tax regime

Bill to Restaurant

Price - RM 10
Sales tax (10%) - RM 1
Total - RM 11

Bill to Customer

Price - RM 11 + 20% margin
Service tax (5%) - 66 cents
Total = RM 13.86

GST regime (which replaces sales tax and service tax)

Bill to restaurant

Price - RM 10
GST (5%) - RM 0.50
Total - RM 10.50

(BUT, restaurant puts the 50 cents back in their pockets, due to an unique way how GST works)

Bill to customer

Price - RM 10 + 20% margin
GST (5%) - RM 0.60
Total RM 12.60

Wait a minute, RM 13.86 versus RM12.60?

Conclusion: Shouldn't GST actually make dining outside cheaper?? So i say, bring it on!

Disclaimer: The above is a very simple layman explanation as to how GST in its many magical ways can bring good to us. However that being said, not all items are subject to the current sales tax and service tax but when GST comes in, a bigger basket of items will be subject to tax. In the eyes of a foodie however, eating outside food should be cheaper, if not the same!


Sean said...

ok, here's a probably silly question: if it does make things cheaper, could some outlets try to rip us off and pocket extra savings for themselves? just wondering, since it seems like some outlets that shouldn't qualify to charge gov't tax are still putting it on their bill...

Nic (KHKL) said...

no accounting knowledge here but am curious about the sales tax and service tax. does that mean that before the implementation of gst, the customer had to pay for both service and indirectly, sales tax ar? ouch my wallet. well, good to know that it's now sales AND service tax aka gst at a flat rate of 5% lah. implementation is another issue, i guess. hehe.

thule a.k.a leo said...

Hahaha... words from a PWC exec (or manager??)

thule a.k.a leo said...

Hahaha... words from a PWC exec (or manager??)

"Joe" who is constantly craving said...

sean: that is the million dollar question..theres always a blurred line between technically and reality

nic: yeah best part its all hidden so you cant see it!

leo: assistant saja la haha

fatboybakes said...

actually, i heard that there are only 1 million tax payers (i dunno how accurate this is.
in that case, GST is a good thing, at least EVERYONE will be subject to some tax... and the non taxpayers wont be leeching off the taxpayers wholly.

well done, accountant. dont leave, your country needs you.

UnkaLeong said...

Written with authority ;) I second FBB's comment above :P

thenomadGourmand said...

wahh..this is useful info!
thks!! Esp when it covers the topic of dining, a topic close to all of our hearts! ;p

"Joe" who is constantly craving said...

tng: glad u found it useful..clears up all the nonsense abt ppl not understanding service tax and service charges too..

unka: oh u too kind..

fbb: yes a small % pay taxes in this country..its about time every1 contributes according to consumption.. aiyah im a nobody la haha..

qwazymonkey said...

This is too smart of a post for my Friday state of mind. Maybe I'll revisit it again on Monday. LOL

But yea, I'd go with the cheaper option. Thanjewberrymuch

babe_kl said...

this will be the scene for F&B right but what about other purchases which currently we're not paying any 5% Govt tax?

Tummythoz said...

GST is on all other non-food items too, right? If so won't the food industry charges higher prices quoting increased costs? Pray say I'm being paranoid.

"Joe" who is constantly craving said...

tummythoz: yes..gst is on other things..but when it comes to the food industry, gst on items they use to make food for us does not affect them (due to the magic of gst)..

babekl: yes thats true..more things will come to taxes..but then again, alot of things are subject to sales tax which you dont see because it happens at the manufacturer stage (more transparency)

Adeline said...

Your breakdown on new GST concept is educational!Thanks!

Here in S'pore, GST is the term used for Government Service Tax which is chargeable on everything, currently it's at 7% (increased from 5% back in 2006 or 2007)...Restaurant trip will set you back further 117% on the Total which includes 10% service charge.

"Joe" who is constantly craving said...

adeline: yes thats about rite in singapore. did u knw it used to be 3% when it was first introduced?

David Jr said...

Hi Joe, just passing by chance and saw your blog. Goodness, you got a ton of reviews! Awesome man! Keep up the great work.

Malaysia Asia

"Joe" who is constantly craving said...

david: thanks!

zewt said...

it would be ideal if this is the case. but the world is not, unfortunately. and in malaysia, u and i know that revenue generation is utmost important. there is no way the govt will allow a reduction in tax collection.

i was in micci meeting today. a retired EPU fella said the 50 bucks on credit card is GST gone wrong... want to collect money but cannot implement GST, so charge 50 bucks per card first.

taht's the mentality and situation that we are dealing with.

"Joe" who is constantly craving said...

zewt: i realised that our mentality shud change as well, instead of always questioning whether things will work thus dismissing it, shouldn't people take a more positive approach to it and say it will work (i know its still quite a challenge despite our govt shortcomings). with gst, despite a lower rate, theres a bigger basket and chances are there will still be an equal if not more revenue for the country.

zewt said...

had a meeting with your boss today... raja k... i raised this with him... he too doesnt believe that prices of goods will be cheaper. the cascading effect from sales tax will not be entirely tapered off.

it's not that we are all have this bad mentality. it's more like we are not given opportunity to think otherwise. so far, have there been any "positive" things that should change our mind?

take the equity relaxation announced earlier... look into the details and you realised that it's only for industry no one is interested in.

by the way, the toilet at level 10 is impressive hahaha!

"Joe" who is constantly craving said...

zewt: hahah y nvr come n say hi to me..yeah i heard u guys were talking abt service tax issues on credit cards n GST..

J2Kfm said...

Singapore has GST right? or whichever country that was I went to.
I'm lost, equally. But your so called 'layman' explanation is kinda comforting.
so we can expect some savings then? :)

"Joe" who is constantly craving said...

j2kfm: basically all the southeast asia countries have gst/vat. the biggest country that doesnt have a system like this is america. i doubt the savings with the local mentality but hope that ignorant ppl dont raise prices..

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