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Thursday, November 14, 2013

“Middle and low-income earners will be hardest hit by GST”

NOVEMBER 12, 2013

The introduction of the Goods and Services Tax (GST) will, in the long run, bring about higher wages but low and middle-income wage earners will have to brace themselves until that happens.

Chartered accountant Ooi Kok Seng said only the rich, like those earning RM400,000 and above annually, would not be too affected by the new 6% tax.

He said those earning over RM400,000 a year and who are in the top tier tax bracket of 24%, would still have RM7,200 in tax savings.

This translates into them affording RM120,000 worth of GST-imposed purchases annually, he said.

"So, the GST will not impact them. But people earning RM3,000 a month, who may not have to pay income tax at present depending on their deductions, will have to start paying tax.

"They will have to pay tax for buying things like clothes. Even school bus fares for their children will be more expensive because of the GST," said Ooi, a partner at KPMG chartered accountant firm.

While there will be exemptions on basic food items, transportation services, highway tolls, water and the first 200 units of electricity for domestic users per month, Ooi said consumers would have to face profiteering by small businesses that would blame the GST and up the prices of their goods.

He said cost of living would go up in the long term, following the implementation of the GST and the gradual removal of subsidies, hence wages would have to be increased in order for the people to survive.

"GST is the right step. We cannot be wrong to implement it when over 100 countries have done it. We need to look at it in good faith as it will make Malaysia more competitive.

"However, it has to be implemented efficiently and leakages must be addressed by the government," he said during a post-2014 Budget talk organised by Henry Butcher Malaysia (Penang) today.

Ooi's remarks contradict Minister in the Prime Minister's Department Datuk Seri Idris Jala’s recent claims that the GST would mostly affect the rich. Idris's statement was rebutted by several opposition politicians and think-tank Penang Institute.

The lower and middle-income earners would also have to reckon with rising prices of properties, which would continue with the GST bringing inflation along with it.

Penang Real Estate and Housing Developers' Association chairman Datuk Jerry Chan said in the long run, low and middle-end properties would be more expensive.

"For the property developer, the investors and the sector, the inflation is good as prices will continue to climb. Properties will become the hedge.

"This is provided that banks do not do anything silly," he quipped, meaning tightening loan regulations and the like.

Chan also agreed with Ooi that low and middle wage earners would be most affected by the GST, now that "everybody is caught in the net".

"When people buy engine oil or change new car tyres, they will have to pay GST," he said.

During the talk, Chan also said the proposal to impose a 3% levy on foreigners buying property in Penang starting next year was "politically correct" and would not be a huge deterrent to control the hike in property prices in the state.

He said foreign buyers would still find the properties here cheaper than those in Singapore or Hong Kong but there could be a spurt in purchases by foreigners before the year ended.

"We do not want to discriminate foreigners but let us look at the impact first before we fiddle with the figures.

"But 3% is liveable for foreigners," he said, adding that Penang was still attractive to property buyers.

"Penang is a real rojak in a nice way but the state needs to be promoted further," he said. - November 12, 2013.

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