Reaping the heavy price of populist policies


THE Goods and Services Tax (GST) is once again the focus of comments by politicians and economists.

The effects of the move to scrap this much maligned and misunderstood tax, which in no small way led to the downfall of the Barisan Nasional government, and to replace it with the less pervasive Sales and Service Tax (SST) have now been quantified.

It has been reported that SST collections are in the region of RM22bil, which translates to about half the amount collected under the GST regime.

A shortfall of that quantum has a detrimental effect in relation to availability of funds for government expenditure both for operational and development spending.

And the irony is that prices have not come down, notwithstanding the limited sectors covered by the SST, which was hurriedly implemented.

The focus of those currently calling for the possible reimplementation of GST is mainly on increasing tax revenue for the government.

It has been recognised in fiscal economics that GST, among others, widens the government’s revenue base and substantially reduces the perpetration of tax evasion and avoidance.

The GST regime encompasses all stages of the value-added process, from raw materials to semi-finished goods to the final product.

It effectively eliminates instances when tax, which should rightfully be paid to the government, is either evaded or short-changed through creative accounting practices.

In addition, a substantial number of products, especially those consumed by the less privileged segments of society, was zero-rated to avoid burdening those who would be most adversely affected by GST.

Those in power are either in denial or too embarrassed to admit their foolhardiness in scrapping GST.

The negative comment by the Finance Minister recently on GST speaks volumes, “Lim: No plans to bring back GST” (The Star, Sept 14).

The minister has reminded the public that the Special Voluntary Disclosure Programme (SDVP) for previously undeclared income will end on Sept 30.

To date, it has attracted 490,000 respondents, which is cause for concern as this number is possibly only the tip of the iceberg of tax evaders.

It doesn’t leave much to the imagination as to how much tax is lost by the government given the limited coverage of the SST coupled with the continued exploitation of its loopholes.

The government now has less to spend. To make things worse, irresponsible elements in our society will continue to reap higher returns as they exploit the various loopholes of the current tax system.

The scrapping of GST has come at a heavy cost given that the expected commensurate reduction in prices of goods and services also did not materialise.

WALTER SANDOSAM

Kuala Lumpur


   

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