I would like to address a number of points raised in the recent webinar hosted by the think tank Ideas (Institute for Democracy and Economic Affairs) and reported in The Star on May 23, 2020.
It is probably correct to say that the abolished GST (goods and services tax), net of refunds, did not yield significant revenue gains over the old SST (sales and services tax). However, I put that down to the design and implementation of the GST which could have been better. The tax was trying to do too much with zero rating, exemptions and special rules that mimicked the SST that it replaced. I, however, cannot quite see how the tax was unfair as claimed by some. In fact, I believe GST was a more equitable measure compared with the taxes in force at that time in Malaysia. Chief among the objectives of implementing the GST was to have a broader and more stable tax base. Given that objective, it was inevitable that someone somewhere had to pay more tax.
Income tax places a higher burden on individuals with higher incomes than those with less. Some would say this is fair. Some would say not. Taxes fund the social infrastructure that all citizens enjoy. I stress the point: ALL citizens enjoy. How can it be fair that one class (those with higher incomes) have to disproportionately pay more tax to fund those with lower incomes who by the way are likely to consume a greater level of social services provided by the government? Other things remaining equal, I think economic discrimination would be a better description of this system of taxation.
It was claimed during the discussion that GST is inequitable and taxes the poor more than the rich. A “rich” person pays GST when he buys a handphone, someone with a lower income pays the SAME amount of GST if he chooses to buy the same phone. Where is the inequality? If the poor person chooses not to buy a handphone, he pays no GST at all. Could it be when the GST critics claim that GST is inequitable, what they want to see is that “rich” people paying taxes while the “poor” people are spared or pay less tax when consuming the same goods and services? The fact is that a rich person and a poor person pays exactly the same amount of tax when consuming the same goods and services.
I believe what GST detractors are concerned with is the possible regressive impact of GST, meaning the burden (relative to economic resources) that a tax imposes on a poor person compared with a more affluent person. The GST on a residential electricity bill of RM5,000 per month may not be a concern to a “rich” man compared with the cost to a “poor” person paying GST on an electricity bill of RM50 a month. Consumption taxes are about the choices we make in what and how we consume goods and services. It has been said that consumption taxes should be paid by those who can afford it; consumers in the B40 group should not have to pay consumption taxes because they cannot afford to. That’s irresponsible. There’s no free ride. The vast majority of countries around the world adopt some form of consumption tax not because they want to tax the poor but to have a level playing field where both the rich and poor contribute to nation building. SST is too narrow, inflexible and inefficient. Has the reintroduction of SST solved our problems or does it have the potential to solve our problems? I want to put a quick question to GST critics: Is GST more inequitable or regressive than the current SST? If the answer is “yes”, how so? Reintroduction of GST will not solve all our fiscal issues. It can provide the revenue and flexibility the government needs going forward but it requires the objectives of the tax to be better explained to taxpayers and the tax needs to be better designed to minimise regressive fallout. It should not mean that a GST type tax should be demonised.
It was also remarked that “I know many people who earn income way in excess of a typical wage earner of RM5,000 to RM6,000 a month and they pay zero tax”. Income tax is weak in dealing with the shadow economy. That’s why GST is effective as a revenue measure. You can’t hide from it. So long as one consumes, one pays tax. Maybe that’s why the tax isn’t popular, even thieves pay tax when they spend their ill-gotten gains. GST is neutral when it comes to how a person derives his income or how much he earns. GST leaves the choice to the individual as to how and what we consume. Is that not fair?
“Why is it that if I am rich and have lots of money, millions in the bank and make capital gains, I don’t get taxed for it?” Let’s bring in capital gains tax! This tax penalises people who are or became successful because they worked hard, are innovative, saved or invested wisely and accumulated, as someone put it, lots of money in the bank. Assuming that the money earned and the assets were acquired above board, income tax would presumably have been paid. The proposal is to tax gains on accumulated assets after income tax has already been paid. Isn’t that double taxation? Even if the assets are inherited, what of it? What wrong has the beneficiary committed that as a consequence he then has to pay a tax? It’s precisely this kind of backward, jealousy-coloured thinking that stands in the way of progress and innovation. Do we want a mindset that says I had better not work so hard or be innovative, then I can’t accumulate assets and won’t be taxed? Are these values we want to encourage in the next generation? Let’s not stifle effort and determination. Reward hard work, excellence and innovation for the fruits that they bring forth. Encourage saving and the passing of wealth and assets accumulated from one hardworking generation to another; that’s been an attribute that has made Asian countries strong and their peoples resilient.
Did you find this article insightful?
75% readers found this article insightful