Why we oppose GST here and now – Yin Shao Loong

Institut Rakyat opposes the implementation of the goods and services tax (GST) in Malaysia at this present time and under this present government.

We take this opportunity to spell out in non-technical terms why the GST is objectionable under our present historical conditions.

Let us consider the arguments being put forward in favour of GST:

1. In the lead up to the implementation of GST on April 1, the government has been mounting a massive propaganda campaign to convince the rakyat that putting more money in the government’s pockets will actually save the people money.

This is probably the most deceitful and insulting argument for GST. If the tax wouldn’t make the government more money than it previously earned, it would be a crackpot regime indeed that implemented it.

The government also can’t make up its mind on what and what not to tax. They’ve had at least seven years to figure this out, yet even a week away from G-Day they were still flip-flopping on exemptions. The government clearly hasn’t adequately researched the social impacts of implementing the GST.

For example, the government has struggled to make up its mind on the value of knowledge and learning. Until last week, the government was set to impose GST on books, effectively taxing knowledge.

Taxing books and restricting access to them would seem to be consistent with the government’s education policy of promoting compliance and mediocrity in order to protect its grip on power.

The government has after all been arresting student activists, along with others who promote critical thinking, as well as those asking questions about GST. Students, as we know, are exposed to books, and some get the courage to speak up after absorbing enough good books.

In the end, pressure from the public and industry, as well as MPs such as Nurul Izzah Anwar, prevailed. Books are now GST-free. Pity the booksellers who had to fork out for expensive stocktaking systems that are now useless.

This is all part of the pain and gain of learning to “Grow and Share Together”. Perhaps cash-squeezed businesses can laugh away their profit margins by watching the execrable GST propaganda music video that emerged last week from Customs.

2. We will leave aside the applause from accountancy firms which stand to profit handsomely from the implementation of GST (go back and see how many accountants the financial news sourced for “informed” opinion on the desirability of GST in the past years).

3. Saying that “most other countries in the world have GST” isn’t a sufficient logical justification. Just because most drivers in KL seem to consider a red light optional doesn’t mean that the rest of us should, too.

4. GST being a fiscal mechanism needs a fiscal justification. The GST is part of a broader plan by the government to bring about a balanced budget without deficits by 2020. Presently, the government’s spending exceeds its revenue, so it is looking to dig into the consumer’s pocket in order to avoid taking on more debt.

Here we have the argument that the current income tax base in Malaysia is too small (11% of registered companies and 14.8% of employees in 2013). Workers who earn below RM5,000 per month are exempt from paying income tax, and this applies to the majority of Malaysians.

The government has shied away from taxing Malaysians earning below this level because it’s not enough to make ends meet for most. Households earning below RM4,000 qualify for cash assistance under BR1M, after all.

So Malaysians don’t earn enough and the government says it doesn’t either. Who has to give?

At first glance the government can either extend the reach and extent of taxation or discipline its expenditure.

The government has turned its back on extending progressive taxation that places more burden on the rich than the poor. They could have reformed income tax instead of cutting it further for the richest. They could have implemented a capital gains tax to siphon off a portion of the gains accrued by the super-rich.

One potentially valid argument is for blanket subsidies that benefit all to be more accurately targeted at the most needy. According to BR1M criteria, nearly half the households in Malaysia qualify for financial assistance since they earn under RM4,000 per month. This is a breathtakingly large proportion of needy households in a country supposedly on the cusp of “developed nation status”.

The government in its 2014/2015 Economic Report says it’s committed to cut leakages in subsidies through targeting measures, but we may well ask if it is willing to cut more infamous leakages elsewhere?

Disciplining expenditure is an annual debate, particularly when the Auditor-General’s Report is released. Typically, tens of billions of ringgit in wastage are identified. We’ve heard the stories: police guns thrown overboard, guns flushed down the toilet, vehicles lost, clocks purchased for RM3,810 a piece, money for cows spent on condos, ad infinitum and ad nauseam.

Yet, each year there is no discipline exercised on the fiscal outrages detailed in the Auditor-General’s Report.

This is part and parcel of the general culture of impunity present in the government’s management of the public service.

Racist teachers get transferred, policemen involved in deaths in custody carry on without justice and anti-corruption officers involved in suspicious custodial deaths get promoted to high office.

The amount of wastage detailed in the Auditor-General’s Report for a given year dwarfs the expected income from GST. The GST is expected to rake in RM23.2 billion this year, while annual government wastage ranges from RM23 billion to RM40 billion, according to estimates by The Centre to Combat Corruption and Cronyism (C4).

The public is effectively being forced to cover wastage and profligacy by government, unchecked by oversight or accountability. It is very Asian to fight to pay the bill as part of the courtesies of hospitality, but this is deeply unjust. Taxpayers have already been financing wasteful spending for years.

This is the very definition of a moral hazard, where one party engages in risky behaviour because another party will incur the costs.

Governments incur a moral obligation to citizens when they take their money as taxes. Government has a responsibility to spend the money well and accountability, or else government would be little better than an extortion racket with uniforms and rubber stamps. Revolutions have broken out for such reasons.

This the crux of why the GST is so deeply objectionable to Malaysians. It is grossly unfair to impose a general consumption tax on a population that is mostly poor by the government’s own unofficial definition while we see the government wasting huge amounts of money each year.

The prime minister’s recent purchase of a luxury jet has soured voters who are already questioning why his existing jet has been flying around the world without him.

The multi-billion ringgit financial scandals of 1MDB and growing questions around Pembinaan PFI represent vast amounts of ringgit that appear to be benefitting a few politically linked individuals.

How can any reasonable, decent government impose a consumption tax on its citizens when its spending of tax money is wracked by scandal?

A kleptocracy would, but last time I checked, Malaysia was a constitutional monarchy operating on parliamentary democratic software (with a long-term authoritarian viral infection).

The present government hasn’t reformed enough to deserve fresh tax money. Until it does, or it is replaced democratically with one that is more responsible, the GST remains objectionable.

The GST cannot even qualify as taxation with adequate representation since it was passed by a Parliament formed through gerrymandering, malapportionment, and electoral irregularity. The MPs who passed GST didn’t even win the majority of the popular vote.

We cannot speak of the desirability, efficiency, or normality of a GST until the fundamental question of fiscal accountability is first addressed.

The government can throw you into jail for failing to pay the GST, but you do not have the power to throw government officials into jail for wasting your tax money.

Bodies need to be set up that independently monitor government expenditure during the fiscal year. Scrutiny must also be extended to government-linked companies to prevent further 1MDBs from emerging. An ombudsman must be established to ensure accountability over government officers.

Next, we can look deeper at the reasons implementation of GST is so problematic in the Malaysian context.

Malaysian wages are presently too weak to sustain a consumption tax without risking worsening inequality and cramping household expenditure.

Weak wages and incomes are the result of the failure of decades of Barisan Nasional’s economic policies to transform Malaysia into an industrial powerhouse.

We still mostly manufacture other people’s spare parts, or use borrowed designs to churn out weak products. We think foreign direct investment (FDI) is a blessing because we lack the technological and economic power to bring sophisticated products to market.

South Korea dragged itself out of colonialism and agriculture to become an industrial heavyweight. Its brands are known worldwide: Daewoo, Samsung, Hyundai, Kia, LG. Malaysia cannot boast the same.

The GST represents a tax built on failures. The BN’s failure to establish a high-wage economy, and its failure to discipline irresponsible spending.

Voters should not be paying for BN’s failures, they should be making BN pay for the failures it has inflicted upon Malaysia.          

* Yin Shao Loong is executive director, Institut Rakyat.