Don gives Tax 101 lesson

Mohd Nazari of UM says the main reason for inflation is growth in money supply, not taxes.

Universiti Malaya’s Mohd Nazari Ismail says that GST is comprehensive whereas SST would not be.

PETALING JAYA: Although any kind of consumption tax will result in price increases, an economics professor expects the re-introduction of the sales and services tax (SST) to be generally less punishing than when the goods and services tax (GST) was imposed.

Universiti Malaya’s Mohd Nazari Ismail, speaking to FMT, noted that GST was comprehensive whereas SST would not be.

However, he added, consumers of items covered by SST would be paying more than they paid when GST was in effect because the SST rate is 4% more than the GST rate.

He was commenting on former prime minister Najib Razak’s statement that zero-rating the GST did not result in price reductions for most items and that the SST would raise prices further.

Nazari said there would be price increases regardless of new taxes if there was a growth in bank loans.

“The main reason for inflation isn’t taxes but the creation of money by banks when they issue loans,” he said. “The issuance of loans will create more money in the system. When money supply grows at a higher rate than the growth of the real sector of the economy, there will be inflation.”

He agreed with many analysts that the GST was more transparent than the SST would be because it matched claims made to transactions performed.

“When a seller uploads his sales on the system, and the buyer agrees with the validity of data according to the invoice, his input tax is assured, provided the seller has paid it. This is not the case with SST.”

He said there wasn’t much the government could do to increase the transparency of the SST and that the focus should be on the transparency of government spending.

The Institute for Democracy and Economic Affairs (IDEAS), in a recent policy paper, pushed for what it called the Reformed SST (RSST), a merging of the best features of the GST and SST.

The RSST would be similar to the SST, a single-stage tax imposed at the manufacturer or importer level. It would see a flat 5% rate imposed only on companies earning RM500,000 or more.

The think tank proposes that sales receipts indicate how much tax is paid to the government and that compliance be simplified so that payment can be done online and in a short time.

IDEAS CEO Ali Salman said GST was not the primary cause of price increases in the last few years. The increases had come against a backdrop of supply constraints and shifting demands, he added.

Addressing the possibility of profiteering due to the SST’s lack of transparency, Ali said checks should come from market forces and not from the government.

The government, as regulator, should ensure businesses didn’t engage in anti-competition activities, he added. -FMT