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Friday, October 25, 2013

No GST, just cut workforce

Published: Thursday October 24, 2013 MYT 12:00:00 AM 
Updated: Thursday October 24, 2013 MYT 8:35:51 AM

A LOT has been said, especially on the technical side of things, on why the Goods and Services Tax (GST) should be implemented in Malaysia.

Most of those reasons may be valid. Here are some reasons, though, that might make some of those reasons not so attractive.

First, just because only about two million Malaysians pay any kind of taxes, according to various data, is not a good enough reason why a new tax should be implemented, which is a tax hike, by any stretch of the imagination.

Thus, if luminaries and other dignitaries make the case that Malaysia has come a long way over the last 20 to 30 years, development wise, as they have, it undercuts the basis for that rosy scenario when they argue that that is not sufficient for us to make it to that next level of development.

In other words, why fix something that is not broken? Or to play devil’s advocate, Malaysia, as part of an emerging market, is blossoming by default, given the headwinds faced in other markets, along with the twin tailwinds of globalisation and technological advances.

Second, if the government is worried about rating agencies possibly downgrading Malaysia’s sovereign bond rating, or creditworthiness, given its deficit as a percentage of Gross Domestic Product (GDP) number, the first thing it must do is to downsize the federal bureaucracy, one of the largest in this neck of the woods.

Doing that would make the GST implementation effort to help rein in the deficit seem like a more sincere effort.

However, that is not what is transpiring as Putrajaya has made it clear that it intends to increase the bureaucracy for this upcoming budget cycle.

So, what is to say that the potential, or real, increases in prices for goods and services that citizens have to pay for is not going to subsidise an expanded, bloated government workforce?

The rule of thumb in government is it is easy to up-size, but not so easy to downsize, for a variety of reasons, not the least of which is being hamstrung, politically.

Third, most people understand and buy into the concept of shared sacrifice in nationbuilding vis-a-vis enlarging the tax base, but to drill down even further, the more important question is: Why should Malaysians pay more for anything when they are already squeezed by rising prices?

Implementing the GST might serve as a damper on stoking domestic demand efforts and therefore hurt small and medium businesses more than large corporations since the former cannot easily pass on those costs, zero-exempted or otherwise, to the consumers, given the intense competition in the retail space.

As in all issues, the decision has probably been made when you get a lot of folks singing the same song.

Nevertheless, it is important to present the contrarian point of view in a society that seeks transformation, but holds on to conformation.

Kuala Lumpur

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