GST allows govt to reduce corporate, income taxes: Economist

Posted on 12 July 2013 - 03:59pm

Last updated on 12 July 2013 - 05:01pm

KUALA LUMPUR (July 12, 2013): The implementation of the goods and services (GST) tax will allow the government to reduce corporate and income taxes to encourage investments, said an economist.

The economist, who declined to be named, said the GST will also help the country retain talent to boost economic growth in a competitive global environment. He said the country's economic growth will help create value-added jobs and increase income.

"However, as rakyat we need to improve ourselves also in order to benefit from it," he told Bernama here today.

Although the government has not specified the rate when the GST Bill was tabled, it has indicated the fixed rate will start from four per cent, he said.

"At this rate, the GST is lower than the sales and services taxes at 10 per cent and six per cent respectively," he said.

Companies with revenue not exceeding RM500,000 per annum were also likely to be exempted from charging GST, he said.

"That means you will pay less for certain products and services if the businesses pass on the savings to the rakyat.

"In the real world, however, it may not always happen, as some businesses would take advantage and keep the savings as their profits," he said.

The economist said with the GST, the government will collect more revenue and tax evasion will be reduced due to the tax's self-policing mechanism that discouraged evasion.

"It is a fairer tax since it is a tax on consumption. The more you consume, the more you need to pay. On the converse, the harder you work, the more will be your income and you should enjoy paying less income tax," he said.

Based on Singapore's experience, he said, over 80 per cent of the GST collected was from the rich and tourists as the values of consumption were generally higher.

Meanwhile, RHB Research said the GST will help the government put in place a broader tax structure.

"As it stands, the government's tax base is narrow with only 11 per cent of registered companies and 14.8 per cent of employees paying taxes," it said in a note.

The narrow tax base, coupled with the dependency on oil revenue, which accounted for 34 per cent of total revenue in 2012, will make it difficult for the government to manoeuvre, it said.

"As a result, there is limited capacity for the government to cut corporate and individual income taxes to make Malaysia more attractive to investors and retain talent," it said. – Bernama