GST not regressive, Customs rep insists

BY ZURAIRI ARFEBRUARY 26, 2014

A Customs representative insists that the goods and services tax (GST)
due to be implemented by Putrajaya in 2015 will not burden the poor more
than the rich. — Reuters pic

KUALA LUMPUR, Feb 26 ― The goods and services tax (GST) due to be implemented by Putrajaya in 2015 will not burden the poor more than the rich, a customs representative insisted today amid criticism that middle-income earners will be hit the worst by the consumption tax.

In a forum on the GST here, Subromaniam Tholasy from the Royal Malaysian Customs Department accused critics of ignoring the effect of the consumption tax replacing the sales and services tax.

“I’m not questioning their methodology … But there were some assumptions made to arrive at these numbers,” said Subromaniam, who is the director of the Internal Tax Division.

A regressive tax is defined as one that is applied uniformly, and takes a larger percentage of income from low-income groups than from high-income groups.

Malaysia currently charges 10 per cent sales tax for manufacturing and imports, and six per cent services tax especially for food and beverages.

This comes as the Penang Institute claims that middle-income earners will suffer the most from the implementation of GST since it will eat a bigger chunk of their income.

While lower-income earners will benefit from cash handouts and high-income earners will save money from income tax cuts, the think tank said that those in the middle will receive neither benefit.

Dr Lim Kim Hwa, the head of economic in Penang Institute, was one of Subromaniam’s fellow panellist today, and was the lone voice against the implementation of GST in the forum.

Lim claimed that on average, a Malaysian will have to fork out RM90 per month to pay for GST, which makes up around 2.52 per cent of his income.

The think tank also claimed that the GST will raise the consumer price index (CPI) by 3.86 per cent.

In defence, Subromaniam said it is impossible to arrive at that number unless one knows the exact effect on each item on the CPI basket.

According to the think tank’s study released in November 2013, households earning RM2,500 per month will be the worst hit, as the GST will cost them 2.67 per cent of their total monthly income.

Penang Institute also noted that certain professions will bear a higher burden of GST, such as technicians, clerical and services workers, farmers, and fishermen.

In addition, single and young Malaysians below 24 years old; Bumiputera-led families; and those staying in Peninsular Malaysia will also be burdened more.

While tabling Budget 2014 in November last year, Prime Minister Datuk Seri Najib Razak announced that Malaysia will finally implement the long-delayed GST at 6 per cent beginning April 2015 to tackle its chronic deficit.

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.

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