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GST In MalaysiaSince its first tabling in 2009, the proposed goods and services tax (GST) has drawn much flak from politicians, economists and the public alike; but is it as bad as it seems? An in-depth look into the mechanics of the tax regime and what they translate into for end-consumers brings about a very different scenario. The facts are that it isnota tax on everything, and it willnotdeprive the public of essential everyday items. In fact, this one-time price increase potentially holds advantages that far outweigh its negatives. Many argue that the GST, when implemented, will prove regressive, meaning that proportionate to income, the lower-income group will get hit harder than their higher-income counterparts. On the contrary, the GST is a consumption-based tax, meaning the more one consumes, the more one contributes to this tax. Additionally, the tax would not be levied on basic necessities, including essential food items like rice, sugar and meat, healthcare, public transportation and education. Standard rated items that would be taxed include clothes and footwear, restaurants and hotels, tobacco and alcohol. On the logical basis that consumption of these taxed items would be higher in the high-income groups, their contribution to the GST would be more.Battle of the taxesOnce the GST is implemented, the sales and service taxes (SST) would be abolished. In comparison, the GST is a more comprehensive, effective, transparent and business-friendly system; and these aren’t just flowery words. Examining the mechanics of the current SST regime exposes its many weaknesses – cascading tax, double tax, pyramiding tax, tax erosion and leakages through transfer pricing, the list goes on. For businesses, this replacement translates into various key entrepreneurial advantages. The GST levied on supply chain points are reimbursable, the system carries minimal classification criteria for smoother application and transparency is much higher, just to name a few. For the consumers, one worry is that those earning less than RM2,480 monthly would have to pay tax in the form of GST whereas they previously fell below the minimum tax bracket. The fact is, those people have all the while been paying tax in the form of the SST. In fact, a meal might even be cheaper, should the GST be implemented at a rate of 4% as compared to the current 6% SST rate. Another fact one might find interesting is that most countries that have implemented GST have effectively reduced income and corporate taxes. This is very likely for us as well, as mentioned by Inland Revenue Board Director-General Tan Sri Mohd Shukor Mahfar.Emulating international standardsOne measure of speculation we can easily use on the end-result of the GST is to look at other countries that have implemented it. Singapore executed its GST in 1994 at a rate of 3%, raising it to the current 7%. Having done so, the country reduced its dependency on income and corporate taxes, thus reducing them significantly. Singapore also tripled its income per capita and drew larger foreign investments as well as human capital since the implementation of the tax. Over a hundred countries worldwide have implemented GST to date, and the system proved successful in many, some increasing their GDP by three to four times, turning budget deficits into surpluses then translating it into offsets to cushion the GST effects. Through GST, Malaysia aims to match these successes and reduce the national budgetary deficit by 3% by 2015 and potentially end the federal budget deficit by year 2020. This would potentially pave the road to a higher-income nation and an overall enhanced standard of living.Equality as a forteUnlike certain race-based policies, the GST system is non-discriminatory, blind to race and religion. The amount one pays is proportionate to the amount one consumes. Simply put, in comparison to other tax systems, it is spend more, pay more instead of earn more, pay more. If consumption equals taxes, people would have more control over their tax contributions, being able to voluntarily decrease their taxes by consuming less or purchasing cheaper products. Those in the high-income groups would already have the means and thus the freedom of choice to purchase branded or more high-quality products. To sum it up, the GST would give consumers more freedom over their tax payables. At the moment, just 10% of Malaysia’s working population is paying income taxation. In a sense, funds taken from a minority group is being used to support the balance 90%. The GST would be a blanket, broad-based tax, turning virtually every Malaysian into an active tax payer. Additionally, analysts speculate that this would encourage the public, thus having a vested interest in government funds, to scrutinise how the government spends public resources. Raising awareness and demand for higher transparency could result in improved accountability on the government’s part.Only time will tellHaving listed the above advantages of the GST system, only time will reveal whether or not it will be implemented, and if so, the effects on our nation. At the moment, no rate has been fixed, but social and pricing impact studies conducted by the Ministry of Finance indicate that the suitable GST rate is in the range of 4%. If implemented with the right methodology in the right condition, and economists would agree, the GST would be a substantial stepping stone in our quest to achieving a developed status in the eyes of the world.

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