All eyes on Putrajaya and GST – TK Chua

Finally, the goods and services tax (GST) is upon us.  We shall wait with bated breath how the new tax will play out in our lives, the Malaysian economy and government finance.

We shall be able to see soon the positive impacts the proponents of GST (including many main stream economists) have hyped about all these months.

They said GST is encompassing but equitable with many exemptions given specifically for the lower income groups and pensioners.  We do not need to wait much longer – we shall see soon whether or not the poor and the marginalised will indeed become better-off.  We shall see whether or not with their meagre and stagnant income, they could indeed now able to buy more stuff than before.  

In fact, it is easy to work out the “cost-benefit” – we shall compare the BR1M each household received and the increased cost of living due to GST.  We shall see soon whether the number of months’ money from BR1M is able to compensate the higher prices as the result of GST.

We shall see too how the Malaysian economy will be positively impacted by GST.  We shall see less tax evasion and avoidance because GST is supposed to promote orderly recording and transparency.  We shall see better allocation of resources because GST is a tax on consumption.

We shall see greater efficiency in revenue generation because GST is supposed to be “self-imposing”, “self-reporting” and “self-collecting”.  All the retailers and business establishments are now the tax agents of the government.  They are supposed to submit statements and remit tax money to the Customs.  

The purpose of tax reforms and GST is to make it easier and less costly for the government to collect taxes. Already the Customs has announced that they need an additional 3,000 enforcers.  Surely this number has not included the numerous consultants, accountants, economists and advisors involved in setting up this system and keep it running.  At the end of the day, I want the Customs to disclose how much was the net gain from GST – yes revenue collected from GST minus all the costs (implicit and explicit) involved.  We also want to know who are the main beneficiaries of the “major expenses” incurred in setting up this tax system and keeping it running.

Yes, the proponents have also argued that the financial position of the government would improve with GST.  With more tax money, ceteris paribus, it is expected that the deficit will come down, so the argument goes.  So are we optimistic or not to see the deficit coming down from now on?

Looking at the way we formulate and manage our national budget all these years, I doubt GST will make much of a difference. I think the fundamental question we need to ask is: did we spend money based on genuine needs and priorities or did we just spend and spend based on borrowing, revenue and windfall availability?

I do not want to prejudge, but based on Malaysia’s budgetary habit, GST will not make a difference.  We have deficit for more than 15 years already. Now we are saying we can only balance our book by 2020. Do you find this odd? Why do we need another 5 years when we have had 15 years to do it? Why is 2020 so magical?  What if 2020 is a recession year when another government stimulus spending is called for?

I think right motivation is most important. We need political will and resolve to be prudent and to solve our deficit problem, regardless of GST. But we shall all wait and see, starting from today.

* TK Chua reads The Malaysian Insider.