GST will achieve financial stability

  • Letters
  • Friday, 25 Apr 2014

I DON’T see much point for the protest rally on the Goods and Services Tax (GST) on May 1 at Dataran Merdeka to proceed as the public has begun to understand the need for the broad-based consumption tax to replace the existing consumption taxes, sales tax and ­service tax.

Even the most vocal critics have admitted the superior efficiency of the GST in taxing consumption. Its efficiency has been recognised in all the countries which have introduced the Value Added Tax (VAT), which is similar to the GST.

Due to its multi stage system of taxing goods and services at each stage of the supply chain, the GST will reduce the leakages inherent in the present system and yield a higher level of revenue collection.

In many countries, they are relying on taxing consumption for revenue, and reducing other taxes on personal and corporate incomes to provide more incentives for people to work and for businesses to invest. Malaysia seems to be heading in this direction.

The critics now maintain that it is not so much the GST that they dis­agree with, but the timing of it.

They say that to introduce the GST on April 1 next year, so soon after the subsidy cuts on petrol, sugar and electricity will add to the build-up of cost pressure on retail prices, resulting in higher inflation, and higher costs of living for the whole population, with the poor bearing the brunt of the price increases.

There is never a good timing for any tax. But as all the economists, analysts and financial experts are saying, this is the best time to introduce the long-delayed GST, when world inflation is low and before world prices on raw materials and commodities and our import prices start to rise again.

Some of the countries that introduced the VAT unfortunately did so when world inflation was higher and consequently faced a spike in inflation, sometimes beyond what they expected.

In all cases, however, the spike was a one-off occurrence, and the inflation rate soon stabilised as the economy quickly adjusted itself to the new price levels.

In this regard, Malaysia has therefore planned the implementation of the GST at the right time.

It is wise to go ahead with the GST now when our fundamentals are still strong to withstand the expected price increases.

Employment rates and incomes are increasing with stable Gross Domestic Production growth and despite higher costs of living, many among the poor can still live decently, especially those with more than one breadwinner in the family.

Of course, there will always be those who are stuck in extreme poverty, either because they are too old, too sick or are disabled to work for a living or caught in the most unfortunate circumstances. These people should be helped.

Indeed, with the savings from the subsidy cuts and the higher revenue from the GST, the Government will have additional capacity to plan for a wider range of welfare services for the very poor.

A country that loves peace sometimes finds that the best way to avoid war is to build a strong military as a deterrent to its enemies.

Similarly, a country that wants economic stability and wants to protect the people from another financial crisis has no choice but to strengthen public finances by improving its revenue system and reducing unnecessary expenditures.

The subsidy cuts and the GST will help us to achieve financial stability and make our future brighter, especially for the poor.


Kuala Lumpur

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