Think-tank: Post-GST economic shocks may swamp low-wage earners

APRIL 2, 2014

A local think-tank Institut said lower-income earners may
struggle to cope with the ‘economic shocks’ arising from
the new Goods and Services Tax (GST). — Picture by Saw Siow Feng

KUALA LUMPUR, April 2 — Lower-income earners may struggle to cope with the “economic shocks” arising from the new Goods and Services Tax (GST), local think-tank Institut Rakyat said today.

Pointing out that Malaysians at the bottom end are already feeling the pinch after the government’s cut back on subsidies, Institut Rakyat warned that the imposition of the 6 per cent consumption tax across the board could engulf the group’s finances.

“With rising inflation due largely to subsidy rollbacks and a likely economic recession by 2016, Institut Rakyat is concerned that lower income households will not be able to withstand economic shocks if GST is implemented,” Institut Rakyat said in a statement today.

In a policy brief on the GST, Institut Rakyat explained that currently most Malaysian taxpayers did not earn enough to pay personal income tax.

“Only 1.8 million people earn enough to pay personal income tax, equivalent to only 28 per cent of total 6.4 million registered individual taxpayers or 14 per cent of the overall workforce,” it said, adding that income growth does not match the rise in cost of living.

It claimed that GST was “regressive” as lower wage-earners will fork out a higher percentage of their income to pay for goods and services, compared to those who earn more.

While noting the current Sales and Services Tax (SST) will be abolished and replaced with the consumption tax, Institut Rakyat said Malaysians would have a “bigger taxable scope” where “almost” everything they buy will be subject to the GST compared to the smaller list previously.

In the same policy brief, Institut Rakyat executive director Azrul Azwar Ahmad Tajudin calculated that Putrajaya would spend an estimated RM19.31 billion just to implement the new system, leaving the federal government with just roughly RM3.87 billion after collecting gross revenue of RM23.18 billion.

Azrul broke down the RM19.31 billion cost into an estimated RM14.4 billion lost through the abolishing of the SST system, RM2.42 billion in tax deductions and exemptions, and a further RM2.49 billion to assist Malaysians in switching to the new system.

The economist then questioned if it was worth putting into place the GST system to get a “rather small amount” of RM3.87 billion in estimated net tax revenue.

The think-tank also questioned Putrajaya’s “moral legitimacy” to collect more taxes, pointing out that an annual audit showed that the government lost between RM28 billion and RM40 billion each year due to “rampant leakages and wastage”.

The amount wasted is “nearly ten times” more than the expected tax collection under the GST, Institut Rakyat said.

“Why is the federal government not prioritising greater savings from curbing leakage and wastage identified by the Auditor-General’s Report?” Azrul asked.

The think-tank proposed that Putrajaya consider other methods to balance its accounts instead, including finding income through more sources, cutting down on spending and eliminating “corrupt practices”.

On Monday, the federal government finally tabled the controversial Goods and Services Tax Bill after a six-year hiatus.

The consumption tax is expected to be implemented next April if Parliament approves it, but Azrul is already looking ahead, saying that Putrajaya would likely raise it from the “introductory rate” of six per cent eventually.

“What is the federal government’s timeline and conditions for retaining GST at 6 per cent or increasing/ decreasing it?” he asked, having conceded earlier that Malaysia’s proposed rate is currently the lowest among all South-east Asian countries.

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