AS soon as talk of introducing a goods and services tax (GST) was uttered, reaction to such a move has been swift.
Opposition to a GST kicked off as soon as Minister in the Prime Minister’s Department Datuk Seri Idris Jala stirred some quarters when he suggested that a GST rate of 7%, which is the rate in Singapore, will yield the Government up to RM27bil in extra income.
Those who don’t like it claim it will burden the people. An increase in tax revenue will mean on average, people will end up paying more taxes.
But Idris did say there is a commitment to reduce corporate and personal income tax rates and that should normally take place as part of any introduction of a GST in this country.
A lower corporate tax rate will lower the cost of doing business. It can mean higher investments and job creation. Cutting personal taxes should be done in conjunction with an equitable review of the tax bands too.
Coming back to the GST, the need to introduce a new tax regime is compelling for the Government. There is urgency to cut the fiscal deficit and at the same time spend on election pledges and development projects.
Extra expenditure will take place during a time when commodity prices, especially crude oil, are on the lower end of the scale and with the Government relying so heavily on petro-dollars for its revenue, something has to give.
It will appear that a GST will be one of them and realistically, because it will prove to be unpopular, there is no point in introducing a neutral rate at a start.
Maybe a big bang approach should be considered. Why take a hit when you introduce a GST and later on subsequent increases to the rate when you can take the brickbats at one go?
But asking the population to swallow something that will be politicised as being unpopular and a burden in a time when cost of living is an issue, knowing what will be excluded from a GST will be important.
Accomplishing that should be a comprehensive education process before a GST is introduced. People will need to know what a GST means to cost and its resultant impact on daily expenses.
The exclusion list needs to be clear. It’s been said that food will be exempted from GST and there needs to be a process to show that people’s daily lives will not be impacted greatly by a new tax regime. A cost and benefit example needs to be played out clearly.
The benefits of paying a higher tax corresponds to the value people see and receive. In Europe, many Scandinavian countries have a high tax regime but people are generally blasè about it.
They value efficient and high quality government services that are funded by their tax money and for Malaysia, things need to improve on that score.
People will need to know that wastage and inefficiencies are being reduced and they stand to benefit from better quality government services that will ease their cost and make their lives a lot better.
The other aspect of a GST is that should it be introduced, subsidies can go on for a longer period. Already a drain on government resources, energy and food subsidies can continue because a GST at the rate of 7% will basically offset the huge yearly bill the Government pays to keep energy and essential food prices affordable to the average Malaysian.
Enforcement to ensure traders and businesses don’t profit from the introduction of a GST needs to be stepped up. Action against profiteering needs to be swift and made public, otherwise confidence in such a new tax regime will be quickly eroded and complaints will flood in.
l Acting business features editor Jagdev Singh Sidhu wonders if the urban/rural divide will be widened by a GST.