With GST, Malaysia heading towards income cliff, says Anwar

BY SYED JAYMAL ZAHIID

OCTOBER 28, 2013

UPDATED: OCTOBER 28, 2013 04:45 PM

Datuk Seri Anwar cited a purported warning by analysts that
any economy that has a disproportionate income disparity is destined to doom. — file picture

KUALA LUMPUR, Oct 28 — Malaysia could see itself heading towards an income cliff similar to that of the United States if it rolls out the contentious goods and services tax (GST), Datuk Seri Anwar Ibrahim said today in a continued attack against the new tax scheme.

In his criticism of Budget 2014, the opposition leader cited a purported warning by analysts that any economy that has a disproportionate income disparity is destined to doom.

“It is now mainstream discussion, that any economy which has a huge income gap, like that of the US, cannot survive,” he told the Dewan Rakyat in his Budget 2014 debate, following up on previous claims that the consumption tax would reduce the purchasing power of the poor and middle income group.

Prime Minister Datuk Seri Najib Razak in tabling Budget 2014 confirmed previous speculation on the impending implementation of the GST to help widen the government’s tax base and slash its chronic deficit.

The GST, which will replace the current sales and services tax at a rate of 6 per cent in April 2015, comes, however, amid public concerns that it will increase the cost of living through a hike in the inflation rate, especially after a fuel subsidy cut in September.

In an immediate reaction to the announcement, Anwar said the new tax system would widen Malaysia’s income gap.

The opposition leader and his allies in Pakatan Rakyat (PR) have long opposed the GST. While some said the implementation must coincide with an increase in disposable income and called for its delay, some have described it as a regressive tax hurtful to the poor and middle-income group.

Quoting renowned economist Joseph Stiglitz, Anwar insisted that the GST is a regressive tax not only because it would raise income inequality, but also distort growth.

Stitglitz in a paper entitled “Development Oriented Tax Policy” said:

“Economists have long reorganized that any market taxation encourages non-market production, and that this can constitute significant distortion…similar issues arise in developing countries, except is not only labor within the household which escapes taxation, but work in the informal sector, which typically cannot easily be monitored, or monitored at all. Accordingly, a VAT (value added tax) or GST shifts resources away from the formal sector into the informal sector, lowering the GDP”.

Anwar also reiterated past claims that the GST would spike inflation. He estimated inflation to be at 5 per cent after its implementation. The present rate is already at a high 2.5 per cent.

PR leaders are already planning to embark on a nationwide anti-GST campaign soon.

Analysts have said that the issue could potentially ignite a political firestorm for BN in the run-up to the next national polls.

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