Published: Saturday October 5, 2013 MYT 12:00:00 AM
Updated: Saturday October 5, 2013 MYT 9:33:41 AM
AFTER more than two decades of stagflation and deflation, the Japan economy finally recorded growth and inflation due to Abenomics’ “Three Arrows” strategy.
These signs are fuelling Japanese hope of an end to the vicious cycle of falling wages that forces firms to regularly reduce prices on everything from chocolate bars to salad.
Amid this newfound hope, Prime Minister Shinzo Abe continued on with the impending legislated increase in GST rate from 5% to 8%, raising fears among some quarters that it may jeopardise all that have worked till now.
Why would Abe take such a huge risk in allowing the increase in GST during this time of Japanese economic recovery? It is because Abe feels strongly that the Japanese recovery cannot be sustained without a more broad-based revenue collection system that can enhance the competitiveness of the Japanese economy.
What is GST?
GST needs no introduction, as most people know that it is a form of tax regime implemented in many countries that would levies a tax at points of consumption. Some say it is a tax on everything. They argue that it will cause inflation, reduce existing income and make the poor even poorer.
But is this really the case?
I would argue that a GST tax system, implemented with zero-rated items for necessities (and threshold for enterprises), can be more transparent than our present opaque consumption-tax system, under which sales and service taxes are levied at intermediate producers and implicitly passed on to the final consumers.
As GST can reduce the cascading effect of our present sale and service tax system, it is less burdensome on the poor and middle class.
In brief, GST is a multiple stage tax system that taxes the “value-added” of the product, as it passes through the stages in production and distribution. The taxes levied at the various production points before the final consumption can be claimed back by the producers as rebates. Ultimately, only the net GST payment would fall on the final consumers.
Numerous nations have adopted GST because it is viewed as being the fairest method of taxing the general public, its neutral treatment of exports, and its ability to fuel economic growth and competition.
The table shows that GST is adopted by many of our neighbouring countries, as well as the European Union.
According to studies by Organisation for Economic Co-operation and Development (OECD), the conventional tax system that relies on individual income, corporate and sales tax is a deterrent to a country’s competitiveness.
The reason is that high income and corporate tax discourages entrepreneurship, savings and investment and ultimately slows down economic growth.
Further, when analysing the tax burden or impact of a tax regime on the people, tax distribution is commonly referred to whether the tax system is progressive (meaning the rich pay more and the poor pay less), proportional (meaning everyone pay their fair share) or regressive (meaning the poor pay more and the rich pay less).
In a pure GST regime, it cannot be denied that it is regressive; the poor tend to pay more (as a proportion of their income) because the GST is implemented across the board, and the poor have no choice but to spend their limited income on the necessities which are also taxed.
However, the pure GST regime could be made fair and progressive with modifications, such as through the inclusion of zero-rate and exemption items and sales threshold before application of the GST on establishments; and it is with these modifications that the GST is implemented in most countries.
At the personal level then, through this modified GST, people can decide for themselves whether to pay consumption taxes through dining out or avoid tax payments by preparing their own meals with essential items that are exempted from GST. It is also a fairer system for the tax is not based on income but spending.
GST vs Current Sales and Service Tax System
Some argue that the GST system, with its multi-tiered tax regime, and rebates at all except the final consumption points, added extra burden to businesses and consumers.
On the contrary, GST would lift some burdens to businesses and consumers by eliminating the flaws and weaknesses in our current opaque consumption-tax regime, such as cascading of the consumption taxes.
Taking, as an example, the value chain of apparel making (refer to Table 1). The process starts with the fabric supplier selling the fabric material to the garment manufacturer, say a shirt material at RM10.
No comments:
Post a Comment