Some Ideas About The SST (Sales and Services Tax)

Ok folks here are some of my thoughts about the Sales and Services Tax or SST. 

Here is some very quick and easy advice to the Government.  Whatever you wish to implement, in terms of policy making, just consult the people. Especially the people who are involved with whatever you wish to do.

If you wish to revamp education, please check with the parents, the public, the education NGOs, the school teachers, the school heads, the students at schools and universities.  They will know more than you.

If you wish to reform policies on foreign labour, migrant workers, etc speak to the employers. The factories, hypermarts, small businesses, etc.  You ignore these people at great peril.  It is so easy.

Similarly if you wish to implement the SST, please speak to the factories, hypermarts, small businesses, etc.

I had a conversation with yet another billionaire friend, a very old friend who imports goods by the billions (distribution and hypermart biz). 

First here are two very important numbers I got from the Net in about 15 seconds. 

1.  Our ports (Klang, Johor, Penang) handle close to 25 MILLION containers (aka  20 foot TEUs) every year, the majority of them inbound.  That is a lot of containers.

2.  Malaysia's import bill is about RM71 BILLION worth of goods each year.

"Malaysia Imports  1970-2018  :  Imports to Malaysia jumped 9.1 percent year-on-year to MYR 71.2 billion in April of 2018"

Ok folks, there is NO WAY the Customs department can do a full and thorough check of 25 MILLION containers. It is impossible. If it takes 10 minutes to check one container, they will need 250 million minutes or (475 YEARS??)  to check 25 MILLION containers.

Here is where the corruption steps in. Or steps up.

My businessman friend says this is how things work now.  

A container may carry say US100,000 (or about RM400,000) worth of imported goods.

To clear one container through Customs, the importers pay "corruption charges" about RM8,000.

RM4,000 goes to the Customs guys. Another RM4,000 goes to the freight forwarders.  This is now standard practise.   And the government gets ZERO tax revenue.

This is the market rate now. 

The SST should and MUST be applicable just ONCE. At the point of entry (for imports) or just once at the manufacturing plants that make the product.

This is very very important. 

Kena satu kali cukup. 

The SST must be applicable just one time only.

Hence the rate of the SST is very important. 

If the SST is set at 10%,  that will be RM40,000 per US$100,000 container (RM400,000) imported into Malaysia.  

Pay RM40,000 Sales Tax for a container of goods?? 

That is too much.    

Most importantly (let me guarantee you) that is NOT GOING TO HAPPEN.

The corruption will only increase.  

The Customs fellows will just collect RM4000 per container, the freightforwarders will collect RM4,000 and the Government will collect ZERO revenue.

The way out of this is to charge a very low SST rate of say 2% only.  

So at an SST of 2%,  the tax payable per US$100,000 imported container (approx RM400,000) is about RM8000.  

This means for the importer it makes no difference anymore (financially) between bribing the customs/freightforwarders RM 8,000 illegally, under the table  AND  legally paying  the government  RM8,000 Sales Tax per container.   This is Step 1. The money the importer has to pay is the same.

Step 2 is the importer feels less stress because he is NOT breaking the law anymore, no need to bribe the Customs, no need to disguise the payments etc etc.  He sleeps easier at nite.   So he would just pay the Customs. He will also more truthfully declare the true value of his imports.

So most importantly the full RM8,000 will now go to the government. 

If the Customs and freightforwarders sapu the money, the Government will receive ZERO revenue.

Our import Bill alone is RM71.0 Billion.  If the SST is 2%, that is RM1.42 Billion.  The maximum I would suggest is 3% SST.  

There is also SST to be collected at the factories that make manufactured products.  Take the value of our manufactured goods and multiply by 2%.  That is a few more billion Ringgits as well. That will be tens of billions of Ringgit. 

Lets keep it simple.   That way everyone makes more money.