IN the National Budget that was just announced by the Prime Minister for the year 2014, one of the major issues was the introduction of the goods and services tax (GST), which will replace the present sales and services tax.
The new tax regime will take effect from 1st April, 2015 at the rate of six per centum (6%) and is presently at the center of the debate by supporters on both sides of the political divide.
Those on the Government’s side have argued that GST is a fairer tax, which seeks to broaden its tax base and shifts the tax burden away from the 1.7 million Malaysians that form 6% of the country’s population.
At the same time, since this new tax regime is a consumption based tax (where taxes are collected when money is spent on goods or services), it is more effective as it will reduce the possibility of tax evasion.
Given that the country’s present inflation rate is low at 2%, the Government’s supporters say that this is the best time to introduce GST.
On the other hand, those on the Opposition’s side argue that GST will burden those from the middle- and lower-income groups.
Their argument is premised on the fact that those who previously did not need to pay income tax will now do so through GST.
In addition, for those who have been paying income taxes, the costs of purchasing goods will be higher since they will have to pay GST in addition to the original price of the goods.
Despite the fact that there are some goods which are exempted or zero-rated under the GST, supporters of the Opposition pointed out that there were more items exempted under the present sales and services tax.
They also raised doubts on GST as the revenues collected would not be properly spent by the Government given the worrying problem of leakages as demonstrated in annual Auditor-General’s Reports.
Having considered the arguments of both sides of the political divide, I would like to share some of my views on this issue.
The GST tax regime is indeed a fairer and more effective tax regime. Not only that - as everyone who spends will pay taxes via GST, it is also a more transparent tax regime.
GST will also stop tax evasion where - unlike the previous sales and services tax - tax values could be hidden, the GST is an output tax and the purchasers of goods and services as well as the Government will be fully aware of the tax payable on the goods and services transacted.
Contrary to the false impression that the GST will lead to higher prices of goods and services, the prices of goods and services are expected to fall in eight sectors of goods and services, according to PwC Malaysia, such as clothes and footwear, gas and fuel, water and electricity.
This is due to the fact that GST imposed on input are claimable by businesses and thus costs of production are likely to be lower.
Further, in order to cushion the effect of the implementation of GST, the Government has also lowered personal incomes tax rates by 1% to 3%, and corporate income tax rates by 1%.
Small and medium enterprises, which form 78% of the country’s businesses establishments, will also be exempted from GST as businesses with sales turnover below RM500,000.00 will not be subjected to GST.
Nonetheless, as one of the Opposition MPs and fellow Star Online columnist Dr Ong Kian Ming rightly pointed out, the items to be exempted under the GST tax regime is far lesser than those under the present sales and service tax regime.
Given that we have another one and a half year to go before the implementation of GST, the Government ought to work on, and look into, adding more items to be exempted from GST to alleviate or minimise the burden of the middle- and lower-income groups.
The issue of leakages as raised by the Opposition - whilst unrelated to the advantages and disadvantages of the GST tax regime - should also be addressed by the Government.
It is a valid concern of the rakyat that their hard-earned monies collected through taxes are properly spent by the Government.
If the additional revenue collected by the Government could translate into better infrastructure, higher-quality healthcare, education and policing services, surely, Malaysians are mature enough to say we can cope with that.
So now, the ball is back in the Government’s court.
Will the setting up of Integrity Management Units consisting of MACC officers in each Ministry be sufficient to reduce - if not completely alleviate - the leakages that we have seen year in year out in our Auditor-General’s reports? Will we see better governance when it comes to the spending of taxpayers’ monies?
These are the things the Government must prove in the next one-and-a-half-years before GST is implemented.