Penang Institute: GST is not the only way to raise revenue

By Fatin Rasyiqah Mustaza of theedgemalaysia.com | Business | The Edge Malaysia – Wed, Oct 9, 2013

KUALA LUMPUR: While some quarters have called on the government to speed up the implementation of the goods and services tax (GST) to increase revenue and address the budget deficit, another group has questioned whether the GST is the only means of meeting the twin targets.

The Penang Institute yesterday said there are other methods besides introducing the GST.

Executive director Datuk Dr Woo Wing Thye advocated a rise in taxes and increasing the government’s efficiency in managing its expenditure to rein in the worsening deficit.

“There is room for efficiency in government spending,” he said, adding that if the government practises open tender procurement it could lower its expenditure by 30%.

Woo told a Penang government forum on GST & You yesterday that action should be taken against certain parties mentioned in the Auditor-General’s reports should there be any inconsistency or inaccuracy.

“We only do something when the Auditor-General’s report is out, which is after the roof has fallen down. Before an event occurs, we should practise open tender as well as inspect or monitor ongoing projects,” he said.

Woo said government linked-companies and state investment agencies should contribute more of their retained profits to the government’s revenue base in the form of dividends.

His colleague at the Penang Institute, Dr Lim Kim-Hwa, said the GST would burden the middle-income group the most.

With an average GST of 7%, he said the middle-income households would have to fork out at least RM104 a month to pay for taxes, representing 2.93% of their total income.

Lim said the GST would heavily weigh on consumer goods, restaurants and hotels as well as transport. Healthcare, food and non-alcoholic beverages would have the lowest GST rate.

He said it is possible to raise the same amount of RM7 billion in revenue per annum, while making the GST less regressive at the same time.

According to Lim, the GST could be implemented in a multi-tiered structure and the tax imposed on only selected items. Income tax rates could also be lowered and refundable tax credits be allowed.

“This is difficult though, as the middle-income groups will still pay higher GST than the higher-income group,” he said.

This article first appeared in The Edge Financial Daily, on October 9, 2013.