‘Suicidal’ to start GST with high rate, warns tax expert

BY ZURAIRI AR

OCTOBER 11, 2013

Customers leave with their groceries after shopping at a supermarket in Kuala Lumpur August 28, 2013. — Reuters picPETALING JAYA, Oct 11 — Trying to fill public coffers by introducing the goods and services tax (GST) at a high 7 per cent would be “suicidal” due to the accompanying uncertainties, a tax consultant warned today.

Dr Veerinderjeet Singh, chairman of tax advisors Taxand Malaysia Sdn Bhd, recommended instead that Putrajaya start off the GST at 4 or 5 per cent, and hike it up only when the new taxation system has stabilised.

“If you introduce GST at too high a rate, that would be suicidal. Sometimes we do take drastic action,” said Veerinderjeet during a public lecture organised by Malaysian Economic Association in Universiti Malaya here.

“Because it means, a lot more has to be done to reduce other taxes. There is a danger of reducing income taxes ... not really being sure if you can collect GST as anticipated because the system has not matured.”

In May, Minister in the Prime Minister’s Department Datuk Seri Idris Jala claimed that Putrajaya could increase its revenue from RM20 billion to RM27 billion at maturity if the proposed GST is implemented at 7 per cent.

Idris, who is also the head of the Performance Management and Delivery Unit (PEMANDU), said that the figure of 7 per cent is similar to the one implemented in neighbouring Singapore.

He also claimed that GST would provide extra funds for Putrajaya to spend on the well-being of Malaysians, to fulfil the promise made by ruling coalition Barisan Nasional before the May polls.

Veerinderjeet noted today that, if implemented at 4 per cent, Malaysia’s GST rate would be among the lowest in the region with Singapore and Thailand both at 7 per cent; Indonesia at 10 per cent; and the Philippines at 12 per cent. China has the highest rate, at 17 per cent.

He was also against reducing income tax to compensate, pointing out that Malaysia is currently in a dismal economic climate in addition to suffering from the current budget deficit.

“I think what should happen, announce GST, introduce it in 2015. Don’t bring down income taxes, manage your expenditure ... subsidy rationalisation has to start,” he suggested.

“And then eventually when the GST is introduced in 2015, you have to give it a couple of years to stabilise. If you do that, subsequently when it stabilises, you bring up the GST rate, then you bring down income tax.”

The GST is a consumption tax, meaning all Malaysians will be taxed according to their level of spending regardless of income. This differs from income tax that is only applicable after a certain salary level is exceeded.

The tax was first announced during Budget 2005 and was originally scheduled to be implemented in 2007 before it was deferred.

The GST Bill was then tabled for the first reading in 2009 for implementation in late 2011, but was withdrawn during the second reading in 2010 following fierce public resistance.

Economists now expect the GST to be one of the measures implemented when Budget 2014 is tabled in Parliament on October 25.

If put into action, the GST will replace the existing sales tax of between five and 10 per cent and service tax of six per cent.

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