It appears that the Government is finally realising the burden GST will be imposing on the middle to lower income groups in the country when the new tax regime gets implemented in April next year.
In Dato’ Seri Najib Razak’s 2015 Budget speech on Friday, he announced a slew of additional exemptions to the GST on top of the existing list of tax-exempt and zero-rated goods and services.
The new list includes all types of fruits, white and wholemeal bread; tea dust, coffee and cocoa powder; yellow mee, kuey teow, laksa and meehoon; essential medicine covering nearly 2,900 brands; all reading materials, including colouring and exercise books as well as newspapers. GST-relief was also granted for the commonly used RON95 petrol and diesel.
There is no question that the desired impact from the above exemptions was to lower the cost of goods and tamper the impact of inflation for the men-on-the-street.
However, given the need for an extensive list of exemptions, as demonstrated by the Prime Minister, it begs the question as to whether the Government has been too hasty in its attempt to implement the GST. It goes to prove our assertion that the GST will become a major burden for the people, especially those in lower income groups.
It is a well-known fact that the GST is indeed a more efficient tax than the existing Sales & Services Tax (SST), but if and only if, the list of exemptions are kept to an absolute minimum. By creating a lengthy list of exemptions, the GST becomes a confusing, cumbersome and complicated tax for all stakeholders – the tax-paying consumers, the tax-operating businesses as well as the tax-collecting customs department.
Traders with a mixture of sales of zero-rated, exempt, and taxable supplies have to keep separate accounts for each of these categories of sales, imposing on them a significant additional burden of compliance. Some businesses can also easily be tempted to evade taxes on their taxable supplies, but even if not attempting to evade, can innocently make errors on their now complicated returns which need investigating and correcting, thereby adding to administration costs.
Tax authorities will dispute with businesses and even consumers as to whether wholemeal bread with chocolate chips or whether coffee beans (as opposed to coffee powder) are taxable or exempt items.
The criticisms against such a GST system are well documented against countries with such a long list of exemptions as it introduces disproportionate high costs of doing business, extensive litigation as well as much heavier burden on the tax authorities to enforce compliance.
Under such circumstances, it is clear that it would be more sensible for the Government to postpone the implementation of the GST until such a time where its implementation would not require the Government to provide such an extensive list of exemptions.
Pakatan Rakyat has consistently argued that the GST places a disproportionate amount of burden on the middle and lower income today because some 80% of Malaysian workers do not earn enough to qualify to pay income-taxes today. While income tax cuts benefit the top 20% of wage-earners as a form of relief from GST, the 80% of poorer Malaysians have no such cushion.
The Government, instead of rashly implementing the GST, should instead focus on raising the income of the bottom 80% of Malaysian workers such that they “qualify” to pay income taxes with higher wages. Only after the income inequality is significantly reduced can the GST be implemented efficiently as a replacement tax regime without many of the tax-exemptions the Government is seeking to provide today.