GST to draw more attention to public spending, analysts say

BY OPALYN MOK

OCTOBER 10, 2013

Ferry passengers enjoy a clear view of George Town, Penang
on September 2, 2013. — Picture by K.E. Ooi

GEORGE TOWN, Oct 10 – The anticipated goods and services tax (GST) may broaden Putrajaya’s tax base but will also turn virtually every Malaysian into an active tax payer eager to scrutinise how the government spends his money, analysts said.

At present, just 10 per cent of the working population pay direct income taxation, but the possible introduction of the GST in Budget 2014 would create millions more active tax contributors more attentive to the wastage of public funds such as those detailed in the Auditor-General’s Report.

“If more people are contributing to the government funds, they will have more interest on how the government is spending these funds, which are essentially their money,” said Ibrahim Suffian, the director of independent pollsters Merdeka Center.

“The actual number of taxpayers currently, through income tax, is very small but when they broaden the base of taxpayers through GST, there will be a bigger voice by a larger group to highlight concerns on how the government is spending public funds,” he told the Malay Mail Online.

Dr Yeah Kim Leng,Group Chief Economist of RAM Holdings, concurred with the view that the introduction of the GST will make Malaysians more vested in the state of government spending.

“This larger group of taxpayers will hold the government more responsible for its expenditure and with more taxpayers, there will be greater pressure on the government to be more accountable on how they spend the funds,” he said.

Beyond creating greater public scrutiny, Yeah said the GST would also strengthen the government’s finances and fortify the country’s fiscal resilience in the long term.

“This is something we’ve been looking forward to as it will enhance overall tax administration and efficiency in the country,” he said, adding that the tax could also be a monetary policy tool.

But not everyone felt the greater scrutiny from more people being directly taxed will result in increased accountability.

Political scientist Faisal Hazis pointed out that some Malaysians, especially those in urban areas, were consistently critical of leakages and corruption in government spending, yet this did not stop the annual financial abuses and wastage revealed yearly in the Auditor-General’s Report.

“GST may increase public awareness but in terms of accountability, I am not optimistic that it would happen,” Faisal said, who urged the government to resolve these concerns before rolling out the new tax.

“The government should address these issues first before they implement GST as a measure to reduce deficit.”

While supportive of the positive effects the GST would have on public finances and policies, some analysts nevertheless voiced concern about the immediate consequence of the new consumption tax, especially in the lower income groups.

Ibrahim suggested that the government introduce a mechanism to alleviate the extra burden the lower income group may have to bear.

Professor of Economics Datuk Dr Woo Wing Thye warned that low wage earners will be hardest hit when the GST is trotted out, regardless of its rate.

“They will bear the brunt of this while those in the higher income group will not be greatly affected as they could still afford it,” he said.

Woo added that this should give Putrajaya pause over the introduction of the new tax in its bid to narrow the chronic budget deficit, saying that reducing spending could achieve this just as well as broadening the tax base.

“GST is the most effective way to collect revenue but this does not necessarily equate to expenditure efficiency,” Dr Woo said.

Putrajaya was placed under increase pressure to introduce the GST in Budget 2014 after global ratings firm Fitch cut its outlook on Malaysia’s sovereign debt from “Stable” to “Negative” in July, citing weaker appetite for reforms since the May 5 general election.

One such reform that it has openly called for is for Malaysia to diversify its tax base through new taxes such as the GST.

The GST is a consumption tax, meaning all Malaysians will be taxed according to their level of spending regardless of their income. This differs from income tax that is only applicable after a certain salary level is exceeded.

The tax was first announced during Budget 2005 and was originally scheduled to be implemented in 2007 before it was deferred.

The GST Bill was then tabled for the first reading in 2009 for implementation in late 2011, but was withdrawn during the second reading in 2010 following fierce public resistance.

Economists now expect the GST to be one of the measures implemented when Budget 2014 is tabled in Parliament on October 25.

If put into action, the GST will replace the existing sales tax of between five and 10 per cent and service tax of six per cent.

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