There is a famous saying by Benjamin Franklin; “in life, only two things are certain: death and taxes.”
Taxes or taxation is indeed a complex topic. Most governments come to power with the pledge to lower taxes because it is politically popular and it makes sense because no one likes to pay taxes because parting with one’s own money is not always easy and it is compounded by the fact that is being paid to the government
In an article published by Simon Black on the Business Insider webpage in 2012, he postulated that taxation brought down the Roman Empire. To support this theory he has this to say: “In the terminal collapse of the Roman Empire, there was perhaps no greater burden to the average citizen than the extreme taxes they were forced to pay.
He added, “The tax ‘reforms’ of Emperor Diocletian in the 3rd century were so rigid and unwavering that many people were driven to starvation and bankruptcy. The state went so far as to chase around widows and children to collect taxes owed. By the 4th century, the Roman economy and tax structure were so dismal that many farmers abandoned their lands in order to receive public entitlements.”
Both the United States of America and India owe their independence in some way to taxation as the Boston Tea Party and the Salt March by Mahatma Gandhi respectively were in response to taxation by the British even though both events occurred 150 years apart.
However, I would argue that taxation is an individual responsibility of all citizens. But one is right to ask, why do we have to pay taxes? I found a very helpful explanation by the Ministry of Finance of Chile. The explanation given is as follows:
“Taxes are collected from citizens by the government to accomplish a series of objectives, namely:
(1) heavily taxed due to the health problems it causes and because the cost associated with health care is usually borne by the government. Should this be the case, production is not a social benefit.
(2) To provide public services: taxes are collected for expenditures that would be less efficient should they be provided privately (defence and other partially public expenditures such as health and education).
(3) To redistribute wealth: the collection of taxes itself serves as a means of redistribution, as does social spending on programs designed to overcome poverty and inequality.”
As such, any government needs to collect taxes from its citizens to provide for essential and non-essential services, and ensure the security of its people. Taxes allows the government to provide education, healthcare, infrastructure development and security to name a few. Taxes also provide of the growth of the economy as revenue from taxes allows the government to invest in the economy.
There are many types of taxes that are collected by government’s world over. Taxes can be both direct and indirect. Direct taxes are generally income tax, stamp duty, road tax and real property gains tax (RPGT) to name a few. Examples of indirect taxes are good and services tax (GST), sales tax and service tax.
A hotly debated topic in Malaysia has been the implementation of GST. I am the first to say, that the GST is a great tax. It is a fair tax that is based on consumption. So the more one’s consumes the more one should pay in taxes.
Second, GST has also disrupted the informal (non tax-paying) economy in Malaysia. Previously, companies were very creative in finding ways to avoid paying the sales tax. However, the GST has ensured this cannot happen because every stage of production is taxed and avoidance also meets hefty penalties. 400,00 companies that should have been paying taxes previously are now doing so, thanks to the GST.
Third, GST has ensured that the 4 million non citizens in Malaysia, who paid no tax previously are now paying taxes and contributing to the national income as they enjoy many of the services provided by the government especially infrastructure and subsidised healthcare.
Fourth, GST has allowed the government to widen its revenue base and ensured more Malaysians pay taxes. Currently, only one in ten Malaysians pay income tax. In 2015, a report by the OECD highlighted that our tax to gross domestic product (GDP) ratio is only 15.3% whilst the OECD average was 34.3%. As Malaysia aspires to be a developed country, our taxation system must be able to sustain this transformation, as such we have to collect more taxes so that the government does not need to borrow money and increase the national debt.
And collecting more taxes does not mean taxing the people more. It means ensuring more efficient tax collection systems like GST that disincentivise tax avoidance. The Panama Papers scandal in 2015 and the recent Paradise Papers leak a few days ago highlights the challenges governments face when it comes to taxation because many disingenuous individuals have developed elaborate and sophisticated tax avoidance schemes and governments must be even more creative to counter this.
While some have termed both the Panama and Paradise leaks as massive invasion of privacy, I think they serve a higher purpose in shedding light on the seedy world of tax avoidance.
The middle class has sustained the highest tax burden for far too long and the rich must now pay their share to ensure that governments can continue to provide the services needed to ensure an acceptable quality of life for the people it represents.
However, the weakest members of society must also be assisted and in this respect the reforms of the subsidy system in Malaysia has been most effective. BR1M and other direct cash assistance is the best way to ensure that subsidies are targeted and effective. Those who require it should only enjoy subsidies.As such, I believe that taxation should be less politicised especially in Malaysia and the claim by the opposition that they will abolish the GST if they gain power at the next election is a political fantasy. The numbers do not add up and numbers never lie.