GST diversifies sources of revenue

  • Letters
  • Friday, 01 May 2015

HAVING attended a Goods and Services Tax seminar organised by the Administrative and Diplomatic Service Officers Alumni recently, I wish to put in layman’s language what I learned and the insights I gained.

Firstly, whenever change or a major policy is implemented nationwide, there is bound to be initial resistance, hiccups and rippling effects as people slowly try to adjust to the new system.

We are in this crucial initial stage of the GST. Teething problems are normal but the earlier we understand the long-term benefits (as opposed to the short-term negativity) for the community and nation, the better it would be for all of us.

The problem has been made worse by greedy businessmen who have taken advantage of the situation by raising prices higher than they should.

Let’s get a firm understanding of the GST and the rationale behind it.

The coverage of the GST is broad-based, meaning it covers a wider range of products and services. The net is now cast wider and hence the revenue collected will be more.

One of the weaknesses of the pre-GST taxation system is that there was over reliance on income tax revenue.

Hence, GST was introduced to diversify the country’s sources of revenue.

In addition, there was a pressing need to bring the underground economy (specific hidden sectors and industries) into the mainstream so that they too contribute to the national coffers. This is made possible with the mandatory registration requirement for all businesses.

Since all those who consume these goods and services have to pay the GST, how then are the low-income groups protected? For this category, about 40 % of their income is spent on food and basic necessities and the good thing is that GST is not imposed on these items.

On the other hand, the rich, with a different lifestyle such as eating out more often and buying expensive things, have to pay more, and all these are subject to GST. The additional revenue will be mostly collected from this high-income group.

Yes, on an overall basis, the Government had forecast a one-off price increase of about 1% to 2 % and to help this group offset the additional burden, the Government has increased the BRIM payout from RM650 to RM950.

Many forget that all this while consumers had been paying 10% sales tax when they purchased electrical items such as TV sets and DVD players, furniture, shoes, handbags and computer-related equipment, just to name a few.

Because the sales tax was embedded into the price and nothing was stated in the receipts, consumers were happily paying the 10% sales tax without being aware of this.

But with the requirement that the GST charge be stated on all receipts, suddenly all consumers are made aware of the imposition of the GST each time they make a purchase. Of course there as a hue and cry.

With the introduction of the GST, this 10% sales tax has been abolished and replaced by a 6% GST. And the sweet deal was that businesses could claim back this 6% GST which they paid to the manufacturer. But most did not bother to do so. They took the easy way out by imposing a 6% increase on the current selling price with the embedded sales tax. Hence, prices rose instead of coming down.

There was an understanding that traders would maintain their profit margin three months before the GST was implemented as well as 15 months after April 1, 2015.

But what happened on the ground unfortunately was not envisioned by the authorities

Yes, the Government has given the signal that it is very serious in addressing the excess profiteering by businesses.

The rakyat has been given the assurance that the Government will go all out to nab these dishonest businessmen. The policing part of the Price Control and Anti-Profiteering Act 2011 will be stepped up.

Many have questioned why a high rate of 6% was imposed. There is a trade-off here. By narrowing the base (exempt more and more items as we are doing now to appease groups), the GST rate would have to be higher to attain the targeted revenue.

On the other hand, if all sectors are included and the coverage of items comprehensive (with minimal exemptions), then the GST rate can be lower. This was what Singapore did when it first introduced the GST imposing only a 3% rate.

There are many positive aspects of the GST. For instance, the price of cars has come down. Previously, the sales tax imposed was 10% but now only a 6% GST is imposed. Our exports will be more competitive as no GST is imposed.

On a macro basis, the higher revenue collected translates to higher allocations to infrastructure and socio-economic projects as well as increasing the BRIM amount.

To offset the higher cost of living, the Government, as a package deal, has also lowered the income tax rates in the 2015 Budget. On an average basis, a tax payer will now pay about RM2,000 less income tax. There is also the assurance that in the long-term prices will stabilise.

On the lighter side, a petition by a group of 5,000 ladies requested that sanitary pads be given exemption on the grounds that they could not choose their sex when they were born.

The Customs Department countered by asking how about men then requesting for GST exemption on razor blades. Where will this end?

Despite the daunting challenges and resistance faced, fortunately there was enough political will to implement the GST.

After all, 160 countries have implemented this tax system and they have not looked back. Except for Brunei and Myanmar, eight countries in Asean have implemented the GST.


Kuala Lumpur

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