Economist calls for flat SST rate to prevent abuse

PETALING JAYA: An economist has suggested that the sales and services tax (SST) be charged at a flat rate to reduce its complexity and thus prevent abuse.

Carmelo Ferlito, a senior fellow at the Institute for Democracy and Economic Affairs, said the SST’s current structure was a muddle because the rates varied and the list of exempted goods and services was too long.

He told FMT businesses could exploit the complexity to raise prices to unreasonable levels and to make false declarations on their collections.

“For example,” he said, “a restaurant may be using ingredients that are subject to different tax rates. Some are exempt, some are 5% and some are 10%.“It’s too tedious to raise prices according to the different rates. So it’s likely that some operators will just go with the highest rate.”

Ferlito also said there would be a temptation to circumvent the tax through false declarations or by bribing suppliers to make them label goods incorrectly so that these would fall under the exemption list.

“How will the authorities know or keep track of such things? You’re talking about thousands of business transactions a day.”

Under the SST, 5,443 items are tax exempt, whereas the exemption list had only 545 items under the now abolished goods and services tax.

Ferlito said the example he gave would apply not only to the restaurant business, but to importers and manufacturers as well. “They might apply increases to their prices across the board because it’s easier to do so.”

He said such price increases would inevitably be passed down the supply chain to the consumer.

He also said that some businesses, unable to bear the headache of a complex tax system, would pay consultants to do the calculations for them. “This will surely drive up costs,” he added.

He said he would recommend not just a flat SST rate but also a review of the exemption list.

“It’s important that tax collection and enforcement be made as easy as possible to guarantee an adequate income for the government.” -FMT