Posted on 5 May 2014 - 07:33pm
Tan Siok Choo
LAST Saturday's massive rally against the goods and services tax (GST) underscores the levy's increasing politicisation and its potential, if improperly managed, to become political TNT – two concerns expressed in my article published last year.
Instead of offering a detailed critique of GST, reports in the print media suggest several speakers resorted to hyperbole about the levy – thus overlooking some cogent arguments for a thorough review of GST.
First, the 6% rate for Malaysia's GST is too high.
Singapore's experience offers several useful pointers. When the republic first introduced GST in 1994, the rate was 3%. Nine years later, it was raised to 4% and then hiked to 5% in 2004 and 7% on July 2007 – the current level.
Chia-Tern Huey Min, deputy commissioner of international, investigation and indirect taxes group of the Inland Revenue of Singapore told an ISIS Forum held several weeks ago that each GST rate increase was accompanied by a reduction in income tax rates.
Singapore's corporate tax rate was successively pared to 17% while the personal income tax rate was also trimmed in stages to a maximum of 20%, she said.
Second, Malaysia's threshold for GST is set at RM500,000 – a level that is far too low and could require thousands of medium-sized and small businesses to register and pay this levy.
In Singapore, the threshold was set at an annual turnover of S$1 million (RM2.6 million) – a level that required only 15% of all businesses to register for GST, Chia-Tern said.
Additionally, the cost of collecting GST in the island republic is among the lowest of all taxes, she said. In 2012, the cost of collection per tax dollar for GST was 0.61 Singapore cents compared with 1.23 cents for PT (either personal or property tax) and 0.55 cents for CT (possibly corporate tax).
In the UK, the threshold for registering value added tax (VAT) – similar to GST – is £79,000 (RM435,400) in annual turnover, said Andrew Webb, senior VAT policy manager at Her Majesty's Revenue and Customs. VAT was introduced in the UK as a condition of European Union membership.
Third, the overarching objective of Malaysia's GST should be to broaden the tax base rather than immediate revenue generation. This could undercut those who claim GST will burden most Malaysians.
Currently, despite a workforce of 12 million, only 1.7 million Malaysian individuals pay income tax.
From its inception, Singapore's GST was designed to be revenue negative, Chia-Tern elaborated. For the first two years after implementation, Singapore collected less in GST than the offsets claimed.
In Singapore, GST-registered businesses can offset the GST paid for their purchases – known as the input tax – against the GST collected from the sale of their products – known as output tax, a Straits Times article explained.
Singapore's GST system of input tax and output tax is similar to that for Malaysia.
In the financial year 1994/1995, only S$1.5 billion was garnered from GST in Singapore against S$1.7 billion of offsets while the following year, S$1.6 billion was generated by GST against S$1.8 billion in offsets.
Thereafter, GST has become the second largest source of the Singapore government's revenue after corporate income tax.
For the fiscal year ended March 31, 2013, GST netted S$9 billion for the Singapore government, a significant jump from S$2.2 billion 10 years earlier, a Straits Times article published recently said.
Fourth, in a striking departure from Singapore and the UK's GST set-up, the Royal Malaysian Customs Department – instead of the Inland Revenue Board of Malaysia (IRB) – will collect GST.
According to a Malaysian tax expert, the rationale for giving the mandate to the Customs Department is because it is the entity responsible for collecting indirect taxes in this country.
Although the department is undoubtedly competent to oversee GST and has the required infrastructure to do so, the IRB could have one advantage – the capacity to cross-check whether the GST paid is commensurate with the company's turnover.
Fifth, Putrajaya needs to communicate more effectively the benefits of GST for individuals, businesses and the Malaysian economy.
Instead of constantly reiterating the poor in Malaysia won't be adversely affected by GST, two salient facts from Singapore could be helpful.
According to Chia-Tern, more than 80% of GST collections in Singapore were contributed by higher-income groups and foreigners.
Additionally, in 1994, the year GST was implemented, inflation in the republic rose to 3.1% – significantly higher than the 2.3% in 1993.
More noteworthy, one year after GST's implementation, inflation was lower and has been consistently below that in 1993; the sole exception was 2008 when inflation accelerated to 6.6% from 2.1% the previous year, Chia-Tern told the ISIS Forum.
Singapore's GST experience also highlights one indisputable fact – in the battle to persuade taxpayers to accept GST, the government's most persuasive weapon is its credibility for financial probity.
Opinions expressed in this article are the personal views of the writer and should not be attributed to any other organisation she is connected with. She can be contacted at firstname.lastname@example.org
(S$ = RM2.60)