Talking taxes

Published: Tuesday December 17, 2013 MYT 12:00:00 AM 

Updated: Tuesday December 17, 2013 MYT 7:35:35 AM

After having been on the horizon for several years, the GST comes into effect on April 1, 2015. We take a look at what this means for the man on the street and the issues surrounding its implentation.

THE GOODS and service tax (GST) has been the talk of the town this year. Coupled with the reduction in subsidies for fuel and sugar, many Malaysians are still finding it hard to digest the fact that prices will rise again as a result of GST.

In this session of Cafe Latte Chat, journalist Nevash Nair moderates a discussion between Klang Member of Parliament Charles Santiago; Lee, Hishamuddin, Allen & Gledhill partner S. Saravana Kumar; and Gerakan Youth Chief Tan Keng Liang to get a better understanding of the implementation of GST and removal of subsidies.

Nevash: How will GST affect the average Malaysian?

Santiago: GST is going to impact different communities differently. It is quite clear that the working class will feel the pinch the most. If you look at the numbers presented by the Penang Institute, the victims will be working-class Malaysians.

Tan: I do agree there will be an impact on Malaysians depending on their income bracket. For the lower-income group, one of the ways to cushion the impact is for the Government to continue efforts such as financial aid given under the Bantuan Rakyat1Malaysia (BR1M) programme.

The Government also needs to look at the middle-income group, as the majority of them will not receive any aid as household income in this group is more than RM5,000. I understand there is going to be a revision of the income tax bracket, which will help ease the burden for the middle-income group. Perhaps, BR1M or a coupon system can be implement to help the middle-income group.

How much can BR1M help ease the burden of Malaysians?

Tan: If BR1M is extended to households earning more than RM5,000, it would be helpful for them. The government could also look at revising the tax bracket.

Santiago: BR1M as the remedy for the working class is not the answer. When GST is implemented, every individual in a household will be affected.

However, BR1M is packaged for each household as a whole. It will not balance the so-called loses that you will have from GST. A better option would be to implement a decent minimum-wage policy for Malaysians. BR1M is a band-aid issued by the Government as a populist measure.

A lot has been said about minimum wage. Are you saying that RM900 is too low?

Santiago: Whenever we meet the rakyat, they tell us that RM900 is not enough due to the rising cost of living.

We need a minimum wage of at least RM1,500 to deal with the rising cost of living. Just look at the cost of medicine. It has gone up by 200% in some instances and the average man can’t afford it. What the government should do is control transfer pricing. We should plug leaks and save millions, if not billions.

What are your thoughts on revising tax rates in Malaysia?

Tan: I think with the implementation of GST, revising tax rates in Malaysia is timely. As mentioned earlier, with the implementation of GST, there should be a reduction of income tax. This has been proposed to come into play in 2016, whereas GST will start in 2015.

The government should look into implementing both simultaneously. Also, several items have been excluded from GST, but I believe the list has to be longer. While I do agree that many essential items are included, more items should be in that list to ease the burden of middle-income Malaysians.

Santiago: The Prime Minister in his speech said there will not be GST for essential items, education, and health services, but let’s take rice as an example.

The farmer has to buy pesticides to ensure a healthy crop. There is GST for pesticides. Then, the miller will be charged for the GST. Packaging has GST and so does transportation. So, overall the price of a kilo of rice goes up. There’s enough confusion on GST.

Saravana: Although GST does not affect some items, the supplier or producer will have already incurred the cost from his provider.

However, some providers, categorised as “zero-rated input providers”, will be able to claim input credit from customers provided that the Royal Malaysian Customs department provides refunds on time.

We need to set up proper fair-price offices. Australia has a very effective system for fair price offices. We do have these offices but implementation and enforcement has been poor.

What are your thoughts on the country’s current subsidy bill?

Santiago: I fear that the victim will be the poor man on the street. We have different types of subsidies in Malaysia. We have subsidies for the poor and subsidies for the rich.

Many Malaysians are poor. What is the rationalisation for reducing subsidies? Although our income is rising, our deficit is rising. So, where is the money going? We should identify the leaks and act on that.

Tan: Subsidies have to be channelled to the right people.Subsidies must be given to the poor. The political view must be there from both sides and we must gradually reduce it. We should study a coupon system where only the poor are subsidised.

Saravana: Subsidies are still needed, but only for those who deserve it. We are still a developing country. I however have to disagree on GST as a mechanism to manage transfer pricing. We already have a transfer pricing mechanism in Malaysia. Having said that, the target for tax collection has gone up, but the number of taxpayers has dropped. The government should act on this.

Santiago: If the Government plugs leaks, revenue can increase substantially. Deal with your transfer pricing and get all departments on board. We have to really plug leaks. I get a feeling that businesses are regulating the Government and not the other way around.

Do the right people benefit from subsidies?

Santiago: We lack a proper social policy. There is no enabling environment that allows poor people to move up the economic scale.

We have band-aid approaches. We need a consolidated policy.

Tan: We can’t have a quick fix policy or a one-size-fits-all policy. We need better coordination. There can be different solutionsfor different issues, but we need better implementation.

Saravana: I agree with Tan that one size does not fit all. Subsidies come from tax payers’ money. The Government has a duty to spend the money appropriately. If the Auditor General’s report reports leaks, the Government should act on it. GST is not the answer to plugging leaks.

Santiago: Social policies are necessary when there’s a huge disparity between the rich and the poor. We need to close that gap. Malaysia does not have that policy and that was the social policy I highlighted earlier. If this is done, there is no question about GST.