I've been travelling again and was recently perusing sushi and snow crabs in Japan as well as other souvenirs to remember the trip by. But apart from exotic food and knick-knacks, one thing that caught my eye was how the Japanese label prices in shops: sometimes the cost you see on the sticker isn’t what you actually pay.
It’s all about consumption tax. In some places, the price on display is one that excludes tax, which means at the register you have to pay an extra 10%. But at other times it works the other way round: As a tourist, you can get a discount at certain shops if you buy more than ¥5,000 (RM158) of goods, because consumption tax does not apply to tourists.
However, this only applies to nonconsumables. If I tried to buy a whole load of Japanese chocolate, even if I promised that it’s all for gifts for people at home, I would have had to pay the consumption tax.
Navigating the labyrinthine nuances of consumption tax (or VAT, value added tax, as some countries call it) can be complex. It’s sometimes applicable, sometimes it isn’t, and the government isn’t always sure whom to trust. Earlier this year, Japan contemplated a revamp of its tax-free shopping scheme for foreign visitors owing to a rising number of misuse cases.
Could this kind of complexity be why Malaysia abandoned the goods and services tax (GST) in 2018, merely three years after its introduction?
I know some people thought it was complicated, to the point that I once wrote about how an MP in Parliament mistakenly believed that each transaction, from supplier to distributor to shop to customer, would repeatedly attract GST, leading to multiple taxation on the same item. In actuality, businesses throughout the supply chain are able to claim refunds; GST is essentially paid only on profit, not the total transaction cost.
However, the refund process proved to be a challenge. Earlier this year, the Federation of Malaysian Manufacturers reported that approximately RM7.8bil of outstanding refunds have yet to be reimbursed.
It was a relatively painless decision for the then government to U-turn on GST in 2018, thanks to its unpopularity and the commitment from Pakatan Harapan to abolish it if they were elected, in one of those rare cases of politicians keeping the promises they made.
But that’s obviously not the end of the story. In 2018, PKR MP Rafizi Ramli said in an interview that the biggest issues on voters’ minds were how to improve their income and the rising cost of living, and that the issue of GST overshadowed the others.
Fast forward five years, and a few days ago, Rafizi – now the Economy Minister – noted that GST still remains a viable option for the government to collect taxes, specifically to “achieve fiscal sustainability through a wider revenue base”.
My translation of that is, “Not enough Malaysians pay enough taxes”. But don’t take my word for it. It’s all in the document titled “Revenue Statistics in Asia and the Pacific 2023: Strengthening Property Taxation in Asia”, by OECD Publishing (available here). It compiles comparable tax revenue statistics for 30 economies, including Malaysia. Perhaps not a gripping page turner, yet eye-opening – and eye-watering – nevertheless.
Upfront, it reveals Malaysia’s tax-to-GDP ratio is lower than other Asian and Pacific economies and regional averages. We were at a mere 11.8% in 2021 – 8.0 percentage points below the Asia-Pacific average of 19.8%, and 22.3 percentage points below the OECD average of 34.1%. For a nation as wealthy as ours, we should be contributing more. (The OECD is the Organisation for Economic Cooperation and Development.)
The largest tax burden in Malaysia is carried by corporate income tax, making up a hefty 50% of tax payments (versus 18% in the Asia Pacific and 9% in OECD countries on average).
So how do other nations compensate for their relative shortfall? You will not be surprised that the answer lies in VAT or GST. The Asia Pacific average contribution to tax revenue from VAT/GST is 26%; for OECD countries, it’s 20%. For Malaysia, it’s zero. Zilch. Kosong.
Perhaps you might think as an oil-rich country, Malaysia can afford to forego VAT. Indeed, in 2021 petroleum-related revenue amounted to an estimated RM42.5bil, comprising 19.2% of our total revenue, largely due to higher dividends from state-owned energy company Petronas on the back of improving global crude oil prices. However, in June 2023, Petronas predicted a peak in domestic oil and gas production by 2024. This contribution will diminish going forward. Coincidentally, reintroducing GST is estimated to yield approximately RM44bil, neatly replacing the large petroleum-related revenue hole.
So you can understand the temptation to bring GST back. It’s not a simple thing to do, not politically, not to implement, not to make sure that everybody gets their refunds on time (and I haven’t talked about the challenge of categorising zero-rated goods yet). But the alternative – that we as a country just won’t have enough money to do what we want and need to do – is depressingly too simple to consider.
In his fortnightly column, Contradictheory, mathematician-turned-scriptwriter Dzof Azmi explores the theory that logic is the antithesis of emotion but people need both to make sense of life’s vagaries and contradictions. Write to Dzof at firstname.lastname@example.org. The views expressed here are entirely the writer's own.