Wednesday, November 25, 2009

The Terrible GST

Prime Minister Datuk Seri Najib Tun Razak made a sudden announcement that a bill relating to the proposed introduction of the goods and services tax (GST) will be tabled for first reading at the end of the current Dewan Rakyat sitting. In order to increase tax revenue, the government may have no choice but to impose the GST. However, the imposition date may be delayed to a year later.

Najib said that even when the bill had been tabled for first reading, the public could still give their comments and the government would make amendments if they found it necessary. This shows that the government is still collecting views from the public and the bill may not be passed in the current Dewan Rakyat sitting, but it can be passed when the sitting resumes in March, or even June next year.

Most of the countries in the world have introduced the GST and it is a more robust and effective way of increasing tax revenue. After the imposition of the GST, the government will be able to reduce corporate and personal income taxes. Also, the government may provide more assistance to the poor and vulnerable groups. In the long run, it can benefit foreign investment attractiveness and economic growth.

Inevitably, the people will have to suffer in the initial stage and thus, the government must ensure that the GST will not burden the low and middle income groups, affect consumption and the economy, as well as lead to inflation.

Najib said that once the GST is imposed, the rate will be lower compared to the current 5% to 10% of sales and service tax. According to Singapore's situation, its GST rate in 1994 was only 3% and it was then gradually increased to 5% and the current 7%. Meanwhile, some European countries impose over 20% of GST but they are developed high-income countries and we should not compare Malaysia with them.

Therefore, the GST rate should not be more than 3% in the initial stage to avoid affecting consumer moods and cause it more difficult for the economy to get rid of recession. Every year when it comes to year end, civil servants will spend much after receiving bonuses and special cash assistance. If the GST rate is higher than 3%, it will certainly affect the sales of businesses.

Basically, the government may impose tax on all consumer goods and services but impose the GST only on luxury goods, including jewellery, yachts, golf and equipment, and luxury watches. As many people are low and middle income earners, the government should not impose the GST on necessities, including government-subsidised sugar, flour and petrol.

Cars should also be exempted as the government has already imposed 100% of car import duty and high internal tax.

If the Government imposes the GST on necessities, it will further burden the poor. It will also affect BN's efforts in defending its regime.

In addition, the GST should not be a blow to the economy, particularly in important areas like real estate. Just like Singapore, it allows GST exemption for house buying and selling. I'm afraid that it may badly affect the whole industry if they still have to pay for the GST after paying the 5% of tax imposed on gains from disposal of real property starting next year.

Another cause of concern is, the GST may lead to inflation. The country has been facing inflation problems after a number of increases in petrol prices in 2007 and 2008. Even after the petrol prices had been lowered later, good prices, especially food prices, remains high.

Based on the government's effectiveness, I'm afraid that the imposition of GST may also bring red tape to business owners.

If the government really wants to impose the GST, it must first strike a balance among the above-mentioned problems to avoid bringing the people a man-made disaster. (By LIM SUE GOAN/Translated by SOONG PHUI JEE/Sin Chew Daily)

Tags : current Dewan Rakyat sitting, Datuk Seri Najib, petrol prices in 2007 and 2008