GST not the solution to fix Putrajaya’s problems – Lim Sue Goan

Finally, the goods and services tax (GST) is here. Putrajaya sees it as a means to increase tax revenue and trim budgetary deficits. But, if it fails, the impact on the national economy could be grave.

Undeniably, GST is going to be a more transparent, fair and comprehensive system, and this is especially so in the light of the plummeting global oil prices whereby Putrajaya needs a new taxation to replenish the drained treasury.

Our existing taxation system is anything but healthy, with only 1.2 million taxpayers contributing to satisfy the needs of 28 million people and "feed" some 1.42 million public servants. Those enjoying the country's infrastructure and welfare should also be made to pay taxes, including foreign workers.

That said, a good taxation system requires equally good enforcement for its effects to be maximised, and it is this enforcement where Putrajaya is at its weakest.

Chaos is expected during the early months of GST implementation, and it is hoped that all relevant quarters will get themselves optimally adapted so that GST could afford a smooth, soft landing earlier than later.

The most confusing part now is that many people are unaware which merchandise will be GST-exempt or zero-rated, as Putrajaya keeps adjusting the existing list. To save a few ringgit more, many have gone on a shopping spree even though they could have stockpiled the wrong stuff.

Moreover, if Putrajaya is less efficient in handling tax rebates, businesses could encounter a cash-flow problem.

The public's load-taking ability is also a determinant factor for GST's success.

If the 6% GST is eventually reflected on goods prices, it could be beyond the ability of many, as they barely make enough each month to make ends meet.

The average salary increment rate for non-executive employees this year is 5.78%, and if GST heralds in steep inflation, consumer sentiment will invariably take a beating, and this will defeat the Putrajaya’s purpose of encouraging the public to spend, hence a higher tax collection.

The Japanese economy slid into a recession following the Putrajaya's move to increase the GST rate from 5% to 8% last April. Because of this, Tokyo has already deferred the 10% GST plan originally slated for this October.

Malaysia's GNI (gross national income) for 2012 was US$9,800 (RM36,301). With more than 60% of the population earning less than RM3,000 a month, I think we need a little more time to fit ourselves into GST.

Could GST become a cure-all solution will very much depend on how Putrajaya uses the tax collection from GST, and how it will modify its financial planning.

When tabling the 2015 Budget in the Dewan Rakyat last year, Prime Minister Datuk Seri Najib Razak said Putrajaya's tax revenue would increase by RM690 million following the implementation of GST. However, on March 23 this year, the finance ministry asked the Dewan Rakyat for additional RM2.2 billion in new expenses, far more than the new tax revenue generated.

If we spend more than what we will collect, budgetary deficits will only be pushed higher. Chief Secretary to the Government Tan Sri Dr Ali Hamsa, for instance, has already agreed to Cuepacs's request to review the salaries and remunerations of civil servants in July.

Although Putrajaya announced during the revision of 2015 Budget in January that it would cut RM5.5 billion in administrative expenditures, the way Putrajaya spends money is largely unchanged. For example, it spent RM190 million more than market price to acquire an ACJ320 private jet.

It is equally controversial for the F1 management company to renew its contract for three years until 2018. Putrajaya has never announced the amount of sponsorships and the numbers could run up to astronomical levels. This is because South Korea had already made a whopping US$185 million loss after hosting the F1 events for four seasons before it decided to pull out.

It is also exaggerated to claim that the F1 events could churn out enormous economic spinoffs. The total number of spectators at the Malaysia stop stood at 120,000 in 2013, falling to 90,000 last year and even lower at 80,000 this year.

As a matter of fact, Putrajaya should take precautionary measures to avoid possible downgrading of our sovereign credit rating due to state investor 1Malaysia Development Berhad.

Although it claims that we can make it to the league of high-income nations, what we see every day is anything but glamorous: outdated water supply infrastructure resulting in frequent water rationing, lack of maintenance resulting in potholed and dirty roads.

GST is by no means a panacea. Putrajaya will need to work much harder to fix its financial woes. – mysinchew.com