For what it’s worth, it must be said that the goods and services tax (GST) proposed by the Prime Minister will definitely be a ghost to haunt him in his political career. To tell you the truth, I was somewhat impressed that such undertaking was even considered, knowing that the PM and the Barisan’s hold on power is hanging by a thread, retrospectively speaking. Many a ruling government were ruined by such bold attempts.

The GST, in a nutshell, is a tax on goods and services in transaction through retail end of the supply chain. That is, it taxes consumers for doing what we do best – consume. In normal circumstances, a retail GST would lead to a marginal rise in prices depending on the rates imposed. Another unpopular attribute to the GST would be its regressive nature; to be precise, the tax burden is greater on those who spend a subsequently larger proportion of their respective incomes. That is to say, a person earning RM1,000 and thus had to spend a larger proportion of his or her income on food, clothing and other necessities would feel the burden much more that those earning, say, RM5,000.

Bad news for the poor? Not necessarily.

The proposed GST bill seems to account for the shortcomings of similar, existing tax legislations as well as giving a partial solution to our narrow tax base problem.

The first of these would be the fact that the 4% GST is set to replace the 10% sales tax (imposed at the manufacturing and import levels of production) and the 5% retail service tax. This translates to a degree of ‘burden neutralization’ as the 10% manufacturing/import sales tax is roughly equivalent to a 6% retail sales tax, leaving an actual burden rate of –2% for the proposed GST - which results in a double bonus of cheaper goods and a boost in tax revenue! Logic defying as it sounds; much of the increase in revenue (touted to be as high as RM1 billion annually) would be due to the higher added value of retail goods over those at the production or distributive levels.

Secondly, no soul in this country could escape the GST. Malaysians hold a notorious reputation of income tax evasion; this, tied with a highly skewed tax regime should not surprise us of our dependence on petroleum revenues. As these revenues dwindle, further burden will shift towards commercial institutions as well as those on the upper tiers of the tax code. As all Malaysian should bear this civil responsibility, not only is this highly unfair, but we have also let slip those who had profited from the hospitality of this nation.

It doesn’t take much thought to conclude that illegal immigrants (1.2 million strong by conservative estimates), being unregistered, does not fall on the radars of the LHDN. Fine and diligent people as they are, it is not an excuse to evade the laws of the land. And who else, much more than most, exemplifies the evasion of the rule of law than those who broke them? Rather than shaking down honest taxpayers like criminals, why not tax the real criminals in the black market, those who operate outside of the system?

But of course not all is rosy. Even with such a burden-neutral structure, in practice retail sales taxes are at best, administratively cumbersome. There are simply too many commercial retailers to monitor, and the enforcement costs of the new system may erode whatever surplus it generates. An alternative would be a 5% wholesale sales tax which is roughly equivalent – revenue wise – to the planned 4% GST. Not only is it cheaper to enforce, given that there are fewer (distribution) firms to monitor, but also as an additional benefit the tax burden reduction is higher at –3%!

All in all, the benefits are indeed there; both for alleviating the strain on national accounts, as well as the comparative social benefit from the current system.

How will Malaysians react? I’m afraid the answer to that question depends on how the spin-doctors conjure it. As for myself, I’m glad the PM is still playing a reformer’s tune.

I have your back, Mr. Prime Minister.

For now, at least.

The author demands to pay his taxes by his own terms and not by those of ‘society’.

 

"Wan Fadzrul Wan Bahrum is a Economic Policy Research Associate with SEDAR Institute.

1. International Studies, Monash University

2. Diploma in Information Technology, Multimedia University

He holds a Bachelor  degree in Business and Commerce: Economics and Banking & Finance with electives in international studies from Monash University".

* "Opinions expressed in this article are the personal views of the writer and should not be attributed to SEDAR institute or any organization he is connected with."

Source: http://www.themalaysianinsider.com/index.php/opinion/breaking-views/45589-gst-what-we-deserve-what-we-need--wan-fadzrul-wan-bahrum

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