Bernama reported just before the implementation of the Goods and Services Tax (GST) that the Prime Minister, Dato’ Seri Najib Razak said that “our aim of implementing the GST is not to burden the people. We implement the GST in a way to minimise the burden on the people. No other country has given as many zero-rated GST and exemptions as we have.”
The above assurance is a complete paradox and ironically serves to prove that Malaysia is not yet ready to implement the GST.
On paper, the GST is indeed a more efficient and effective taxation system relative to both the former Sales and Services Tax (SST) and even the existing income tax. It is for this reason, that many governments, including Malaysia, has decided to implement the GST system for its direct taxation.
However, Dato’ Seri Najib Razak, who also holds the position of the Finance Minister, failed to recognize the fact that the more efficient GST predicates upon the simplicity and universality of the tax. This means that the GST is efficient because it charges a single tax rate and it applies to all products. The outcome under such a system will be a tax that is simple to understand, easy to implement and cheap to administer.
Once the list become lengthy, and in Malaysia’s case, the Prime Minister had proudly boasted that it is the longest in the world, then the GST become an inefficient taxation system which is arguably worse that the SST system it sought to replace.
As we can see today, there are major confusion all around the country among both manufacturers, sellers and consumers of all types of goods and services. Even the most literate of the new tax are often uncertain of the exact classification of products which are either standard-rated, tax exempt or zero-rated.
You can hear for example. how the GST-experts on radio talk shows get stumped by questions posed by their listeners. Or you can read the various news reports of inconsistent application of GST across the same or similar products between different retail outlets.
Many businesses until today, have yet been able to implement their GST system simply because of the sheer complications involved in their goods and services which require extensive reengineering of their work processes. Accounting wise, any shop which offers or produces all 3-types of standard, zero-rated and tax-exempt products effectively has to put in place 3 sets of sub-accounts.
The costs involved in such extensive reengineering which often necessitates a computerisation exercise and increased specialist staffs have already caused many smaller firms with small profits to choose to close their business.
Despite clearly knowing the above, the Government has proceeded with its self-pronounced longest list of zero-rated and tax exempt goods and services. It did so purely because they know that the income inequality in Malaysia will not be able to tolerate the regressiveness of the GST system which burdens the poor proportionately more than the rich. However, that in turn defeats the purpose of implementing the GST in the first place as a more efficient and effective taxation system. Instead, the GST becomes a confusing, cumbersome and costly system to implement.
More ironically, the world’s longest list of exemptions and zero-rated goods and services proved that Malaysia is not ready for the implementation of the GST as we are faced with a wide income disparity and a population where more than 80% don’t even earn enough wages to qualify to pay income taxes.
The Government should have instead addressed and resolve the low income and inequality issue in the country first before switching to a GST system. Had Malaysians achieved a higher income status and lower income inequality, we would not then need to implement a GST system which is riddle with such complication tax exemptions.
Instead of boasting about our world’s longest list, Dato’ Seri Najib Razak should be embarrassed that we would soon become the world’s most famous textbook case study on how not to implement the GST. The Barisan Nasional government’s incompetence and the unwillingness to listen to dissenting voices opposing the GST implementation leaves Malaysians once again trapped between the hard rock and the deep blue sea.