Do you agree that GST should be implemented in Malaysia?

e-Poll Do you agree that Goods and Services Tax (GST) should be implemented in Malaysia? The e poll is put up by !oyal Malaysian "ustoms at its o##icial $ebsite$$$%gst%customs%gov%my to gather and understand public #eedbac& on the implementation o# GST in Malaysia% 'ut o# the total votes (()*(+)) ,*- votes or ./0 $ere disagreed $ith the implementation o# GST) $hile */* votes or **0 agreed $ith it% The e poll results may not be a good representative o# public #eedbac& as it is only involved ()*(+ votes or people perhaps% 1hat are the bene#its or pros 2 cons #or implementing GST in Malaysia? 3mong the pros and cons) bene#its4advantages or disadvantages o# GST perceived by the public are5 !easons support #or GST5 (% 6ncrease national4government revenue and mitigate the heavy reliance on income tax and petroleum tax) in $hich income taxes contributed --%-0 o# government revenue in *7(7% *% Tax burden $ill not increase $hen income level increased% +% 8veryone $ill pay tax and tax burden is spread over) instead o# 9ust relying on income taxes derived #rom (:0 o# the $or&ing population% -% 'vercome the loopholes o# current sales and services tax systems% :% 8liminate over lapping tax at di##erent stages) as GST is generally charged on the consumption o# goods and services at every stage o# the supply chain) $ith the tax burden ultimately borne by the end consumer%

/% More stable #or government revenue $ith GST as a consumption tax based) compared to direct income taxes and minimise the impact o# economic cycles) particularly during recessions% .% "orporate tax and individual tax rates could be reduced% ;% Minimise the occurrences o# tax evasions% !easons disagree $ith GST5 (% May result in in#lation as general products prices may go up% *% 6ncrease the tax burden on lo$ income $or&ing group (the other ;:0 as described item + above) +% The government may possibly increase the GST rate #rom -0 to (:0 to increase revenue% -% 1orry that the GST tax may even higher than current sales tax (70 and service tax :0% :% 1orry that the e##ect o# tax revenue re distribution may not be achieved%

3re more debate and #eedbac& on the GST necessary?

Thursday March () *7(*

"omment <y =ang <eng >oe T>8 recent announcement by the Deputy ?inance Minister Datu& Donald @im Siang "hai that the Government $ill be holding #urther discussions $ith various groups to ascertain $hether Malaysians are really ready #or the GST (Goods and Services Tax) raises Auestions among some on $hether #urther engagement can add much more% The $hole business community) including the chambers o# commerce) manu#acturers and trade associations have participated $ith o##icials in extensive discussions over the course o# the last #e$ years%

1hile it is conceivable that some may have residual concerns) it is hard to imagine they can no$ have serious ob9ections over its introduction or are una$are o# ho$ the tax $ill broadly operate% The la$ has) in #act) been tabled #or #irst reading in Barliament% 3s a business group) they $ill not bear the real burden o# the tax% Their burden is the cost o# helping the Government collect the tax% They are) in this sense) agents o# the Government) not di##erent conceptually to tax #armers in ancient times) $ho collect taxes #or their lords or &ings but get to &eep some o# it% 8conomists recognise that all taxes have $hat is called a dead$eight cost $hich is di##erent #rom the amount o# tax itsel#% 6t is the output) $hich $ill be higher i# the same tax revenues $ere raised in a less burdensome $ay% 1hile the overall burden o# collecting income tax is higher than a consumption tax) such as the GST) the business sector here has to bear a higher proportion o# the dead$eight cost by virtue o# the structural nature o# the tax% Discussions on ho$ these can be ameliorated are obviously relevant and these $ould generally continue even a#ter the implementation o# the tax% The challenge to any government see&ing to introduce GST in times o# economic uncertainty can be daunting% <roadening the tax base under GST may not necessarily provide the expected additional tax revenue i# the countryCs economic per#ormance languishes) in line $ith possible dismal external conditions% The plight o# the lo$er income group $ould then be compounded by the ne$ tax% 6t is in this light that the ministerCs message can be appreciated% GST $ill a#ter all represent the most pro#ound tax re#orm measure in the countryCs tax history and getting it right in terms o# timing and coverage is utterly vital% @oo&ing beyond the micro issues o# ho$ the tax $ould a##ect businesses) it $ould be interesting and illuminating to consider the current debate in the Dnited States on both spending and tax re#orm% 6ncluded in the latter are proposals to introduce a E3T (value added tax) another name #or GST)) $hich some say) is the only $ay to address the DS governmentCs seemingly intractable de#icit position% The thrust o# the arguments sho$s Auite clearly ho$ vie$s on the E3T are highly in#luenced by politics) trumping technical arguments and the vie$s o# experts% The !epublicans) $ho oppose all taxes) are concerned that the e##iciency o# E3T $ill turn it into a money machine) encouraging excessive spending by the

government% The Democrats consider the tax to have a harsher impact on lo$ income household relative to the more progressive income tax% <ruce <artlett) a tax expert and #ormer advisor to !onald !eagan in his ne$ boo& The Benefit and the Burden outlines these and other reasons $hy the Dnited States should have the E3T and $hy it $ill not% The case #or a E3T in the Dnited States is no di##erent #rom the case #or us here5 F The need to #und the Government de#icit except that theirs is at a vastly astronomical levelG F E3T is generally considered to be the best tax ever inventedG it raises more revenue at less cost) and F 6t eliminates the cascading e##ect in the sales tax and is di##icult to evade% Detractors point to the #act that5 F E3T is complicated particularly i# it contains many exemptions% 1hile it $ould be complicated to implement) once in) place it $ould not be particularly di##icult to operate% The experiences o# the many countries $ith the tax provide use#ul lessonsG F E3T is regressive but this is something to be addressed through the mechanisms available in the tax structureG and F E3T is in#lationary but economists do not consider the one time price increase on implementation as in#lation% These reasons are incontrovertible and our o$n o##icials charged $ith #raming the tax have clearly recognised them to be so% The political philosophical reasons $hich have not resonated in our public discussions are the #act that consumption tax is more in line $ith #reedom than taxes on incomes because people can reduce their consumption i# the tax is too burdensome and taxes on consumption it has long been argued are morally pre#erable to taxes on saving or the return on savings% These are esoteric issues and really do not count #or much #or most $ho $orry about the bread and butter concerns o# the GST% >o$ever) the one advantage that GST has is that it $ill be assessed on imports and rebated on exports% ?or an export oriented economy) Malaysia is at a distinct

disadvantage $hen almost all our trading neighbours have adopted GST and $e have yet to do so% This is because the GST adopts the destination principleG goods exported to di##erent countries bear only the tax imposed in the country o# #inal sale% This means that a Malaysian product entering Thailand $ill su##er a .0 Thai E3T on importation% 'n the other hand) a Thai product entering Malaysia do not su##er GST since $e have none) but the Thai exporter $ill bene#it #rom a rebate #or Thai input tax su##ered $hen it leaves Thailand% So the tax cost o# the Thai product sold in Malaysia contains no element o# E3T $hereas a Malaysian product sold in Thailand $ill incur Thai E3T $hen imported into into the country% Malaysia cannot give an income tax subsidy to our exporters to put them on level ground as this $ill contravene 1T' (1orld Trade 'rganisation) rules% Malaysian export manu#acturers should have no compelling reason not to support GST%

GST benefits outweigh drawbacks

P Ramani | September 2 ! 2 "#

The Goods and Ser$ices Ta%! when implemented! ma& cause a one-time price increase' though on long haul its benefits outweigh the drawbacks(

)udget2 "* +eature B8T3@6HG I3J35 Goods and services at present are sub9ect to a one time sales and service tax thus a lo$ rate Goods and Services Tax (GST) may have di##ering impact on prices o# goods and services o##ered) says Tan 8ng Je$) executive director o# Deloitte =assim "han Tax Services Sdn <hd%

3ccording to Tan) there are many #actors to consider including i# an item is presently taxed along the supply chainG on the basis o# the present sales tax $hich is at (70 and service tax at /0% Some prices may increase) some may remain and the Kero rated items may get cheaperG provided the savings obtained $ith the implementation o# GST is #ully passed on to the public) said Tan% The GST is being proposed by the government to replace the current consumption tax i%e% the sales and service tax (SST)% The introduction o# GST is seen as part o# the governmentLs e##ort in re#orming its tax structure to$ards a more e##icient and e##ective taxation system% GST $ill be imposed on all taxable goods and services consumed locally% 6mported goods and services $ill also be sub9ect to it% 8xemptions may be made by the government #or essential items and the current proposed rate being speculated is -0 on the supply chain% Tan also added that in reality) prices may sho$ a one time increase as experienced in countries that have implemented the GST system% The price increase should be at the #ull rate o# GST as there should be savings in sales and service tax $hich $ill indeed be abolished $ith the introduction o# GST) said Tan 1hen as&ed $hether GST $ill burden Malaysians) Tan stated that GST should be understood #or $hat it is) as it is a more e##icient consumption tax regime compared to sales and service tax% GST does not discriminate GST is applied across a $ide spectrum o# goods and services) $ithout discriminating $ho the consumer is% Hevertheless one may argue that it can burden the lo$er income groupG $hich may be a reasonable argument) said Tan Tan also added that it is reasonable to say that the higher income group consumes more) meaning that they $ould be contributing to a larger proportion to the GST collections eventually% This $ould provide the government an opportunity to channel the larger contributions by the higher income group to helping the lo$er income group) he said% The tax expert also reminded that the success o# GST should be assessed #rom the $ay the #unds are collected and utilised to assist the lo$er income groups and #ul#illing other governmental spending needs%

Tan also believed that the government is loo&ing at restructuring the entire tax system and GST is part o# the ongoing e##ort% >e also stated that the optimal time #rame $ill be (* to (; months #or preparation by businesses to prepare them to comply $ith GST reAuirements and believes Malaysia $ill #ollo$ the same strategy% The critical importance #or businesses is to understand that GST should not be a tax on businessesG #or GST paid can generally be claimed as credits against GST charged on sales made) he said% There#ore businesses should not increase prices unreasonably and eAually important is a strong public education program to promote acceptance o# GST) added Tan% Tan also illustrated that prices o# some non essentials may reduce and as an example) a meal at a restaurant is presently sub9ect to service tax o# /0 and i# GST is introduced at a rate belo$ /0) the public $ill pay less #or the same meal% 3part #rom introducing GST) Tan believes that it depends on the governmentLs ob9ectives $hether theyLre merely loo&ing into collection in short termG as #rom the tax consumption vie$point) the government could simply increase the rate o# sales tax or even broaden the scope o# service tax% ,mplement GST fairl& Mean$hile Malaysian 6ndian <usiness 3ssociation (M6<3) vice president (?T "hapter) and chartered secretary) S =umarasen said that the introduction o# GST $ill certainly a##ect the consumers) and the government should introduce a mechanism to chec& on the implementation o# the GST% 3ccording to him) certain goodsL prices need to be maintained at a ceiling rate and not allo$ suppliers to increase prices steeply and trans#er the burden to consumers% =umarasen mentioned 6ndia as an exampleG $hen they introduced similar tax) they had a mechanism in place by putting the price as part o# the pac&age in the goods and services% 3part #rom that =umarasen also suggested that the government should announce the types o# goods and services that $ill be sub9ected to the GST be#orehand% 3nother important thing the government should remember is to provide clear a$areness or education in terms o# GST to the public or else they $ill have a misconception on ho$ itLs being implemented) he said

=umarasen stressed that in order to have a level playing #ieldG income tax should also be lo$ered #or a more balanced tax system%