'GST will curb unexplained profits, large capital outflows'

Malaysians should back the goods and services tax (GST) as it would force rigorous record-keeping on many businesses that would help curb unexplained profits or large capital outflows from the country, Minister in the Prime Minister's Department Idris Jala wrote today.

Idris (right) blogged that even if GST is included on government's budget for 2014, it may only be properly implemented "sometime in 2015."

He said a lead time of 12-18 months was needed to prepare for it and it was the government's side-intention to use the value-added tax to weed out tax and accounting frauds.

"For instance, studies have shown that Malaysia has large capital outflows which can't be reconciled in the national accounts. As much as 80 percent of this is said to be from transfer pricing where firms transfer costs to various centres around the world to minimise the tax," Idris wrote.

"Once a GST is implemented it makes it very much more difficult to do so because complete records are kept at every stage of the value-adding process.

"There are records of who sells to you and at what price and the same for yourself, all along the chain. It is just a matter of going down the chain to see if you are playing around with your figures."

He gave the example of changes to come for a company manufacturing bottled drink:

"You will have to buy all your inputs such as sugar, flavour, bottles and so on from suppliers. These suppliers will include a GST in their sales to you."

"When you sell your bottled drink, you will have to add on a tax to your product which represents the GST. But you are entitled to claim a rebate on the tax to the value that you did not add, in other words the tax your suppliers added on. To do that you have to keep proper and complete records."

Extra revenue will be ploughed back

On concerns that the poor and middle income group would suffer if the GST comes into effect, Idris Jala, who is also the CEO of economic planning unit Pemandu, assured the public that the government would plough back extra revenue collected. 

"First, because essential goods and services that will be consumed such as food, public transport and education are likely to be zero-rated, consumers will not be paying extra taxes here," Idris wrote.

"Second, as government revenue increases, it has more money to provide for social safety net programmes such as BR1M, the 1Malaysia cash assistance programme for lower middle and low-income groups."

Idris reiterated the long-standing government position that GST was needed primarily to broaden the government's tax base. Only less than two million out of 29 million people in Malaysia now pay income tax, he said.

With the GST, anyone who can afford to spend money is taxed. Idris emphasised that most countries in the world already have a value-added tax, even oil-producing ones like Malaysia.

Malaysia have toyed with the idea of a GST for nearly a decade. The second reading of the GST bill, already delayed since 2009, is largely expected to show up again when Parliament discusses the budget later this week.