Better governance, not GST

 

Last week I attended a conference officiated by Prime Minister Anwar Ibrahim in which the organisers went to great lengths, including a glossy video presentation, to advocate for the reintroduction of the goods and services tax (GST).

The prime minister set aside his prepared speech and made his views clear – good governance is the top priority, not higher taxes. There should be no increase in taxes, including through GST, until systematic wastage, leakages and corruption have been tackled. This is right.

People pushing for GST miss the point that higher tax revenues from GST mean higher tax payments for everyone and widening the tax base with GST means poor people pay more in taxes.

GST takes more money out of the hands of the rakyat and puts it in the hands of politicians who have a very bad track record on where it goes.

GST is regressive. The World Bank speculated recently that RM19 billion could be taken from ordinary people if GST is reintroduced. This is equivalent to 4.7% extra tax for people on minimum wage but only 0.4% extra tax for those at the T20 threshold wage.

Low-rate GST a non-starter

The idea of introducing it at a low rate and raising it slowly is a non-starter. Treasury secretary-general Johan Merican has made clear that based on ministry of finance modelling, GST would have to be at least 5% to be net positive. In the Top-30 economies to which Malaysia aspires, average consumption taxes are 20%.

If GST has the same scope as it did previously, it would cover 70% to 80% of products and services whereas the sales and service tax (SST) covers around 40%.

So, it would raise prices across a wider range of goods and services purchased by many more people, and companies would have to deal with lost revenue and cash flow problems waiting for repayments like before.

GST should not be reintroduced any time soon because it is a very bad tax which hits everyone, especially the poor, and it is not necessary if revenue and spending is managed responsibly.

Raising SST by 2% does not expand the tax base significantly but does raise around RM3 billion more. The increase largely affects high-income groups and protects low-income groups so it is progressive and adds to government revenue in a meaningful way, so it is a revenue-raiser.

Rather than reintroducing GST, the tax changes in Budget 2024 to SST, capital gains tax (CGT), luxury goods and even sugar, as well as better tax collection, show that small adjustments to the existing tax system can help manage fiscal policy more responsibly. Especially if it is matched with tightening of spending to cut wastage, leakages and corruption.

This combination has allowed a reduction in the deficit and higher spending from a 6.4% increase in revenues and so reduces need for the reintroduction of GST. Other alternatives are also possible.

Budget Oversight Committee

The prime minister laid the groundwork for a clear plan to cut wastage, leakages and corruption first before burdening people with higher taxes.

To help in this, the new Budget Oversight Committee is extremely important and very welcome. It should help to ensure the proposals in Budget 2024 are actually implemented and are managed to achieve the desired outcomes.

The committee should be as transparent as possible. It would be better if it included independent external experts with regular public reporting like we had with the Laksana Reports during the Covid-19 stimulus process.

The Parliamentary Budget Office promised in the Pakatan Harapan manifesto should also be established to allow members of parliament to scrutinise the budget impact with independent analysis and public debate. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.