Transformation in the Area of Taxation Means Malaysia Needs a GST

Friday, 12 July 2013 newsadmin

For a nation such as ours a Goods and Services Tax (GST) is a no-brainer. It is far easier to administer than the existing sales taxes and will boost government revenues while helping to reduce the fiscal deficit.

Unlike income tax it rewards savers and is easy to understand. Consumers need to know no more than that a flat percentage is added at the point of sale to the things they buy.

That percentage, as proposed in the 2013 budget, is a mere seven percent – exactly the same as Singapore's. It is below the 10 percent Australians pay for their GST and a far cry from the whopping 20 percent that is Value Added Tax (VAT) in the United Kingdom.

Added to this compelling argument, economists say it will have only a temporary impact on inflation, adding between 0.8 to two percent depending on how our consumption patterns adjust to the changes. Government officials have vowed to be on the lookout for any profiteering that coincides with the introduction of the tax.

As Malaysian Rating Corp chief economist Nor Zahidi Alias put it: "One way it will benefit the economy is that GST is neutral with respect to market forces and businesses, unlike the sales tax."

So it sounds like the sensible thing for Malaysia's future, but that doesn't mean introducing a GST will be easy. For one thing, all new taxes are controversial and have the capacity to upset the rakyat.

But perhaps more damaging could be the role of Opposition. It will sense the chance to score a few easy political points and if it does so, it will be detrimental to the best interests of the nation. Voters shouldn't forget the contradictory tax "policy" that was outlined in Pakatan Rakyat's manifesto. The 26% income tax rate threshold it promised to raise from RM25,000 per year to RM400,000 and its famed 20 percent oil royalty. These are two initiatives that empty Government coffers and it offered no viable ideas about how to replenish them.

Broadening the tax base is a crucial economic reform like any other the Government is committed to, and pushing ahead with the GST will be a test of its nerve in the face of the inevitable Opposition point-scoring.

The Government needs to be brave.- See more at: http://www.thechoice.my/featured-articles/65046-transformation-in-the-area-of-taxation-means-malaysia-needs-a-gst#sthash.ykuo078v.dpuf