Tuesday, June 11, 2013

GST to bring bounties to all Malaysians


June 10, 2013

BY Sathish Govind

KUALA LUMPUR: The topic of the goods and services tax (GST) has been on the backburner for a long time and its implementation has long been delayed. While the government has convinced itself of the need for its implementation, it has not been able to articulate with the same conviction to the people as with other policies.
Part of the reason is that one segment of politicians have made a convincing case as to how people would become impoverished with the implementation of the GST.
GST is required to address Malaysia’s fiscal deficit and provide for the transformation of a fundamental and equitable tax system in the country. At the moment, only a small population base pays taxes, approximately 10% of the workforce or 5.6% of the nation’s 28 million population.
Surely it is not sustainable over a long period of time. Thus, the need to look for an alternate source of income such as the GST. Malaysia is currently over-reliant on oil revenue, accounting for about 40% of the national coffer. The problem is that this segment of the revenue is cyclical in nature.
As we move forward, another concern is that export revenues are likely to decline with tepid economic conditions in international markets coupled with declining import duties due to trade liberalisation.
It would become even more compelling with the imminent formation of the Asean Economic Community in 2015 which will see taxes and tariffs being reduced across the board.
At a time when the government is looking for a stable source of revenue, it is even more necessary to implement the GST which provides a stable source of income which is less susceptible to economic downturns due to the consumption nature of the tax.
This would become more imperative as many government projects are in the pipeline. The projects would directly benefit the people. Its execution should not be hampered by the lack of government revenues.
Still, there are lingering concerns. One notable issue is inflation. If that kicks in, it would exacerbate the burden of the people that would soon have to contend with subsidy rationalisation programme that would inflate all prices of goods and services.
It was estimated that if the GST rate is set at around 7%, the effective rate in neigbouring Singapore at the moment, the nation woud rake in approximately RM27 billion.
This could be channelled towards the various government programmes that would ensure the wellbeing of the people.
The additional income raised could be channelled towards the wellbeing of the people through assistance such as Bantuan Rakyat 1Malaysia that could be targeted at groups of people that would continue to need assistance.
The GST would also attempt to address the inherent weaknesses of the existing sales and services tax and progressively reduce the corporate and income tax simultaneously with the implementation of the GST.
Tax consultants have pontificated that there are myths that need to be debunked to inspire the confidence of the people, notably that there would be a general increase in prices across the board.
There are a large number of goods property that would be exempt from the GST. It includes essential foodstuff, water and electricity, government services and public transport, health, education, highway, toll financial and residential.
On top of that, there are legislations such as the Anti-Profiteering Act that is in place that would deter retailers from charging excessively on goods.
Fears of the proposed implementation of GST could be allayed with the fact that it is implemented in 140 countries. The only three countries in the region yet to implement the tax regime are Brunei, Myanmar and Malaysia.

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