Friday, November 15, 2013

GST is payment for 'free dinners'


Monday, 07 October 2013 admin-s

But if the government cannot cut expenditure because it has to give
 "free dinners" every five years, Woo quipped, then it is basically imposing
such taxes to make people "pay for their dinners" after the election is over.
Himanshu Bhatt, fz.com

Slowly but surely, across the nation the jitters are rising as the days inch closer towards Oct 25 – when the Prime Minister is expected to announce a new Goods and Services Tax (GST) while tabling Budget 2014.

Many quarters are of course very worried about the burden of double or multiple taxes with the introduction of such a tax. There are also concerns that businesses will increase their prices and thereby create a spiral inflation effect.

Certainly, the burden will be biggest on the poor.

According to a study by the Penang Institute, the GST is expected to raise RM7.5 billion from households alone.

Assuming that the tax rate would be 7%, each household would end up paying RM104 per month on average.

This is based on the latest Household Expenditure Survey which says that the average household pays 4.41% of expenditure or 2.6% of income.

But there are wider implications, including inflation spiking by 3.86%.

Whatever the rate is, there is going to be a secondary impact, the study shows.

Dr Lim Kim Hwa, a fellow with the institute and a fellow in Finance and Financial Reporting at the University of Cambridge, recently said that passing on costs to consumers is a very likely consequence of the GST.

"It's the secondary impact, where people start passing the amount by charging more," he told a forum on the GST organised by the Penang Institute here, recently.

"After the implementation of the GST we expect there will be a sustained period of high inflation."

One important element is commercial property, Lim pointed out.

While residential properties will not be subjected to GST, nothing has been said of commercial properties.

"And that has implications," he said. For example, when owners add GST to rentals, it would definitely increase the cost of doing business in Malaysia.

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