GST: It’s dire straits ahead for Malaysia

Malaysia’s economy is not ready to withstand the effects of GST and after paying so much in taxes, the revenue might not even reach national coffers.

COMMENT

By TK Chua

It looks like the Goods and Services Tax (GST) will become a fait accompli tomorrow although many Malaysians have expressed their discontentment over it. However any group of citizens from any country would not willingly accept a new form of taxation easily. Protests and disagreements are expected.

What then is our next step? Unless the government changes its mind, which is most unlikely, what lies ahead really is for both the government and citizens to find a way to handle this new tax system the best way we can.

We have often quoted other countries that have implemented GST (or a variant of it) as a justification for us to do the same. Yes, it is true many countries have implemented it; but not every country that has, is doing well economically. Many, in fact, are in dire straits.

I think we must first look at the economic and social conditions of those countries that have successfully implemented GST. Take our immediate neighbour down south as an example – it has a very competitive market economy with decent average wages and an orderly business recording and bookkeeping system. Without these pre-requites, I think it is very difficult to implement GST successfully.

Right now we are supplementing our low income earners with BR1M which would suggest that our income level is not ready for GST yet.

If we want to implement GST successfully, we must have real productive jobs giving the people real decent incomes, certainly not through hand-outs like BR1M and other subsidies or welfare programmes.

With 40% of households being recipients of BRIM and when our civil service and GLCs have continued to expand despite privatisation, it does indicate that GST will be a bane. So, where are the productive and high income jobs? This is the nation’s top priority, I would like to reiterate.

If we want to implement GST successfully, we must also have a competitive market economy with an efficient business recording and bookkeeping system in place. Only a competitive economy will ensure fair pricing and no profiteering. There is no way the government could decree pricing or exercise control on prices and profit margins effectively in a market economy like Malaysia.

Enforcement would be terribly expensive and more often than not, it would lead to endemic corruption as businessmen seek to circumvent regulations and officials seek to enrich themselves.

Take for example as reported; the Customs Department alone needs 3,000 additional officers to implement GST (this is excluding all the consultancy, accounting and other incidental expenses incurred to put this system in place).

Three thousand officers with an average all-inclusive cost of RM3,000 (remember, it is not just salary, but perks, travel, office space, equipment, etc) per officer per month would come to nine million a month and $108 million a year. Can we see the point here?

I thought the beauty of GST was its “self-imposing” and “self-collecting” ability. If we need such a massive machinery to control, monitor and enforce compliance, there is definitely something not right.

I know many of the points mentioned here have been stated before. But it is worth repeating because unless we tackle these fundamental issues, the implementation of GST is going to be messy. It will cause the people to pay through their noses, but the money collected may not reach the national coffers.

TK Chua is an FMT reader