Delay GST or poor will suffer, say economists

Implementing a goods and services tax (GST) now would burden the poor the most and undermine the government’s welfare measures, economists said.

Speaking at a forum in KL, economists from various think-tanks said that businesses would likely find a way to escape and the rich will hardly be impacted.

“The way to broaden tax is not to burden the poor but bring household income up and increase enforcement so that more people pay taxes,” Teh Chi Chang, director of Research for Social Advancement (Refsa) said.

“GST is not appropriate at this time, as Malaysians are too poor to pay GST.”

Penang Institute fellow Lim Kim Hwa said that he expected a 99 percent chance that GST will be implemented.

However, he also agreed that the poor will suffer the most. Lim noted that the GST is supposed to replace the sales and service tax at hotels and restaurants, and so for the rich who patronise such places more often, it would have no impact.

Teh, who is also a Petaling Jaya City Councillor, said that only one in six working adults now pay income taxes. And so, a GST would be a new form of tax for the majority of Malaysians, especially those now receiving so-called welfare help from the Najib Abdul Razak government through Bantuan Rakyat 1Malaysia (BR1M).

Cash-based businesses

He said he expected more businesses will attempt to evade the tax by turning to cash-based business, which escapes the government’s watch. Malaysia already has a huge untaxed ‘black economy’, Teh said. 

Penang Institute’s Lim  had earlier presented an economic study which pinpointed exactly where the GST pain would come from. He estimated that if a 7 percent GST kicks in, the overall inflation rate would rise by nearly 4 percent.

The average household would then end up having to stump up RM140 extra every month, or about 3 percent of the average income.

“The tax is regressive - this means the poor will be paying a higher percentage of their income on GST... the poor will be hit the most,” Lim said.

The government would however stand to collect RM7.5 billion in extra revenue, provided that implementation is flawless, Lim said.

The forum was moderated by DAP’s Serdang MP Ong Kian Ming, who later said that the people can only hope GST pain can be delayed by hicccups in the implementation stage.

Ong said he expected the second reading of the GST bill, already delayed since 2009, to be brought up in the next Parliamentary session when the budget is tabled.

“It would possibly be passed by the end of this year but implementation may take 14-18 months and so we expect that it may not be properly implemented until 2015... but the process has to start around now,” Ong said.