Accept or reject it? — Lim Mun Fah

OCTOBER 29, 2013

OCT 29 — After the 2014 Budget was tabled, like many other ordinary citizens, I was most concerned about whether inflation would follow the implementation of the Goods and Services Tax (GST) in April 2015. Would I benefit from the suggested 1 per cent to 3 per cent reduction of income tax? Would my purse shrink?

The GST is not a new tax system. Neighbouring Singapore started implementing it as early as in 1994 but it started from 3 per cent and at the same time, the income tax rate was reduced by 3 per cent. The rate was raised to 5 per cent nine years after the tax was imposed and further adjusted to 7 per cent in 2007. Japan adopted a progressive implementation, too. It started by imposing 3 per cent in 1989, increased it to 5 percent in 1997 and plans to raise it to 8 per cent next year.

What is worth echoing is, the Singapore government actually increased subsidies for health care, education and incidentals the same time it implemented the GST. Various incidentals and rental rebates were also provided and the Committee Against GST Profiteering (CAP) was also set up to prevent profiteers from using the GST as an excuse to unjustifiably increase prices.

Our GST is proposed to start at 6 per cent and it is believed to have scared many people, particularly ordinary citizens who lack understanding about the GST, like me. My first reaction was: would goods prices increase? I am also concerned about what kind of protection umbrella the government will prepare for low-income earners before implementing the GST to reduce the impact on them.

Some experts told us that the GST is actually a fairer tax system and it would be replacing the existing sales and service taxes which lacks efficient, transparency and is more favourable to businesses. Therefore, the implementation of GST is not a bad thing. Moreover, prices of some goods and services might even decrease. You must pay income tax once your income reaches a certain level but you will have to pay the GST only when you consume. Therefore, the people do not have to worry too much.

However, many politicians have repeatedly warned that the implementation of GST is actually a start of another nightmare. They have also predicted a high inflation era. Who should I believe?

I am a practical person and I believe that any tax system carries advantages and disadvantages. Imposing the GST at a rate as high as 6 per cent means it is impossible that the markets will not be impacted. Although the income tax would be reduced by 1 per cent to 3 per cent, the corporate tax to be reduced by 1 per cent and the 10 per cent of sales tax and 5 per cent of service tax revoked, would these measures actually help? The unavoidable fact is, the government is determined to reduce the national fiscal deficit and thus, it needs to expand tax revenue. Eventually, the people would have to pay more tax.

There is a little relief as some necessities such as rice, sugar, flour, cooking oil, beans, spices, meat and vegetables are exempted from the GST. Transportation, health and education services are also exempted from the GST. However, tax exemption and no price hike are two different matters. If the costs of raw materials increase because of the GST, some goods prices will inevitably increase. The impacts of the phasing out of government subsidies are immediate, too. For example, after the announcement about the subsidy abolition for sugar was made, its price will soon be increased by 34 sen per kilogramme. We will have to pay for whatever we are given. Sooner or later, manufacturers will shift the burden of increased costs to consumers.

The actual situation will show after one and a half years. We will be able to know what it means by the so-called spend more equals to pay more taxes and the extent of the impact.

** This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malay Mail Online.

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