Saturday, November 28, 2009

GST Debate Commences

The debate has begun. Should we or should we not implement the controversial Goods & Services Tax (GST). I've received a comment from a supporter in my earlier post that he supports GST. His arguments are as follows:
  1. Currently our Sales Tax is 10%. So, I think anything lower than that is a better deal for the Rakyat.

  2. GST is fairer. GST is a consumption tax, people with more income consume more, so they will be taxed more often. People cheats on Income Tax, which explain the low percentage of Rakyat who are tax payer. With GST, those who cheats by not paying or paying less will still have to pay some tax to the Govt, especially when they buy big nice cars and houses.

  3. GST is more difficult to cheat than sales tax. Because Sales Tax is so easy to cheat, SMEs who are honest are forced to cheat in order to survive. An example, it's common to find a clause in an open tender that states that the provider has to bear all taxes, and every participant knows that if he doesn't cheat on Sales Tax, he would not have the chance to win the tender. This scenario cannot happen in case of GST, as everyone in the supply and consumption chain has to pay GST, therefore you can't have a clause in the tender to excuse yourself of not paying the GST. With GST, all honest SMEs and providers can now compete fairly and squarely in the market place.

  4. As GST is more efficient, the revenue for the Govt will increase. In theory, the Govt will have more money to do all kind of wonderful things for the Rakyat. Now, the track records show that our Govt favors a selected groups of Rakyat and often squanders billions of MYR. Still, I think GST do more goods than harms. Especially when DAP comes into power.
My short response will be as follows:
  1. Our sales tax is 5%, and that's only on very selected goods.

  2. I agree with all the theoretical arguments mentioned - (2) and (3). But you have to balance that against the pain you will incur on 85% of the working population who does not pay any income tax at this point of time because their income levels are too low (and not because they are evading taxes)

  3. As for(4), I fully agree that implementing GST will increase govt revenue, that's why BN is doing it, 'cos they've run out of money after wasting it in the last 10-20 years. It has bled Petronas dry and now it wants to bleed the people too.

    Lets increase govt revenue by increasing the income of the people (more income, more people will need to pay tax) instead of increasing govt revenue by increase tax rates.
Our BN govt wants to increase tax rates without first increasing the income of the people, and hence it is both unfair and burdensome to the people.


KJ said...


so what are your immediate plans on increasing the income of the people?

Anonymous said...

Hello Tony,
Please help to check on Iskander exposure,if any, from Dubai World fallout.

magnee said...

Hi Tony, I'm no economist. I only speak from my personal experience and what those experience taught me. There are different level of Sales Tax and Service Tax in our beloved country. When I was an active Director for a company in the construction industry, the Sales Tax was 10%, I do not believe it's changed now. But the rate is inconsequential in our debate: to do GST or not.

I totally agree with raising income level of the Rakyat. However, implementing GST will not hinder but will help in this objective.

1. GST is a replacement of the archaic Sales and Service Taxes (SST). Income Tax is a separate issue, the poor who has not been paying any will not pay any. The rich who has been evading Income Tax by paying less will continue to evade and go about their happy business. Now the problem is that it is easy to cheat on SST but not so easy to cheat on GST. Therefor, the well-connected big businesses who has worked out a "solution" on SST will not like to see GST being implemented as it will create a level-playing field in his/her market place. 5% or 10% has major impact on your competitiveness. A level-playing field is good for the economy and therefor good for the Rakyat, the poor will gain more out of this than the rich and well-connected.

2. The concern is that the poor would have to bear higher prices because of GST. Well, actually GST is not suppose to raise prices of goods. If SST is working correctly, and if GST has the same rate as SST, then the price of goods should remain the same before and after implementation of GST. If SST is 5%, and if the govt set GST at 4%, then a cup of coffee should cost 1% less when GST takes effect. But because GST is a lot more efficient at collecting taxes, the additional revenue can then be used to help the poor, to help them raise income level, or to build better schools, and hopefully not bigger and grander admin buildings or more fancy cars for officials, for example. But this is not a debate on how to spend money, it's a debate on how to collect money.

And GST is really the way to go. No to SST! For the Rakyat, for the prosperity of our Malaysia.

Unknown said...

My response here:

Heh, I like KJ's retort. In any case, the GST is painful. The GST won't be necessary if not for BN's incompetence and corruption. But the GST is the best solution for the Malaysian fiscal problem today.

Low to middle income countries with some sort of VAT/GST or national consumption tax:

Albania, Argentina, Armeia, Belarus, Bosnia, Brazil, Bolivia, Colombia, China, Dominican Republic, Ecuador, Egypt, El Salvador, Fiji, Georgia, Guatemala, Guyana, Iran, India, Indonesia, Jordan, Kazakhstan, Kosovo, Lebanon, Morocco, Moldova, Macednia, Mexico, Montenegro, Mauritius, Pakistan, Panama, Paraguay, Peru, the Philippines, Russia, South Africa, Sri Lanka, Thailand, Trinidad & Tobago, Turkey, Ukraine, Uruguay, Vietnam, and Venezuela.

If those countries can stomach a consumption tax (with some, like Brazil, India, China and Vietnam growing strong despite the global recession), I don't see why not Malaysia.

Jokersland said...

All the while, we had been paying a lot of indirect taxes.Previous when we buy a new car, the price structure will be make known to us, like actual car price, excise duty, sales tax and acc. Now it's all in the lump sum unless we take the trouble to find out.Just to protect proton and the elites APs holder, we are subsidizing them. The proton is a sub standard and it's also contribute to a lot accidents and life that can be avoided if the safety feature are on par with international standard.
I think the GST will have a very huge impact to the low wages earner.Every items will increased in tandem and the salary become stagnant. I hope the gov will study carefully if they want to implement the GST without first increased the GDP on the ordinary people like me.

marcus63 said...

GST is definitely a more efficient means of taxation than income tax because you get taxed as you spend. However, i fully agree that GST should not be implemented in a country with high corruption and low class delivery system. this is because even though taxation methodology is efficient, but the people tasked to run it are bn cronies, who will simply divert the monies collected into their pockets. take a look at all government institutions, epf, & income tax included, and see if the money they collected are invested or put to good use. look at bernas. instead of protecting the padi farmers, and ensuring good supply of rice, we have ended up from being an exporter of rice to a net importer, and yes, produce inferior strains of rice to boot.
2ndly, what is to stop the umno warlords from using this gst to tax the consumers, and keeping the $$$ for themselves and not pay to the governing board? like airasia todate still has not paid for landing rights etc to mahb? which very soon will reach rm1B?
all in all, the little guys are screwed whereas the cronies are enriched. the income gap will widen further.

Anonymous said...

gst is a consumption tax, meaning it will decrease consumption and thus decrease economic growth.

also gst is a form of regressive tax. which places an undue burden on the lower income group.

just 2 points regarding the argument made about consumption above.

Anonymous said...

Petronas already contributes over 40% of government's total expenditure. Now, Umno BN want to introduce 4% GST to generate more revenue for government. Rakyat will have to pay additional 4% every ringgit they spend. Generally, our cost of living is still very high as the results of failed Umno BN policy in contained inflation past few years.
BN at federal level seem not enough money to spend. Federal government should look at ways in spending wasteful mega projects, rather than taxing on Rakyat.


Donplaypuks® said...

When S'pore introdced 3% GST some years ago, the also cut income tax by 3%.

So, far PM Najib and the Govt have remained mum over this issue.

Without such a corresponding cut in income tax, GST will cause a serious rise in inflation and will also be an additional tax on us at a time when most developed and developing countries are cutting taxes!

We are all of 1 race, the Human race

Anonymous said...

Herea are the plans:-
1) By Reforming All Cronisme Businesses via GLC by setting-up "Special Independent Commission" ensure/identify there Earn More Due to "Productivity Competitiveness, Efficiency & Effectiveness" NOT By "Guaranteerism & Protectionism & Compensationism" who contributing to the Nation-Wealth Not solely Cronyism-Wealth..& By removing those Underperformed/Non-performed/Burdenism GLC Cronies-subsidiaries....Not via the Special aids/non-productive subsidies/compensation due to known/unknown/hidden.. lossess/pricing/corruption practices by Getting "True & Correct"..Not Only Fair " data & figures through Indenpendent-Commission not only by getting its from those cronism companies facts & figures..."

2) Provide Special Unconditional Citizenship for Exra-ordinary Talents to do..businesses in our country or globally.

3) Relinquishing unproductive/redundancy agencies/departments of well....privatising its to indenpendent local companies..!

4)Disclose & declare & distribute to Rakyat Malaysia "Unclaimed Money Accumulated till todate"..for all the Rakyat Malaysia.

5) Creating "1Malaysia Shares" for every citizen who are productive/innovative/Creative in Malaysia via "1Malaysia Incorporation".
Some called "Earn-More-Pay-More"shares (Higher-Earners) As well as those called "Work-More-Get-More" shares(Lower-Earners) allowing all productive Rakyat Malaysia having 1Malaysia Shares..!

6)Reform the Pension Scheme..via more "Social Life-to-Life Scheme"..For every High-Income-Eaners pension offset against every Lower-Income-Eaners pension..!

7) EPF system in the Lower-Income Bracket by increasing employer's contribution..towards offsetting by reducing the employer's contribution to the high -Income-Earners."EarnMore-GetLess"+ "EarnLess+GetMore.="Balancing System" ie. "(10-5)+(5-10)=0"

It would happen..only if those Fundamental-Rakyat-Malaysia-Rights" are truly working fund-a-mental-ly based on 'A True-Social-Network-Policy'system of economy..!

Old Fart said...


Firstly, the comment favouring GST that you have based your arguments on does not exactly provide any useful information about why or how GST operates or works. That it is fair or fairer says nothing at all.

Secondly, your response to that comment shows complete lack of knowledge and understanding of how GST operates. The reasons you have provided will stand naked in the presence of GST that operates in Indonesia and The Philippines.

Rather than wasting your time arguing against the imposition of GST, it would be better if you made some attempt to understand what GST is all about and how it imposes itself on the final consumer. Then, when you really understand it, maybe you can then put together useful arguments that can insulate the 85% you are talking about from the effects of GST.

Just to give you a clue, it is not too late to ensure that zero rating is applied to as wide a grouping of goods and services as possible. Exempt goods and services too can insulate people from GST at the basic sustenance level. When this is adequately covered, it is possible for the poor, should they want, insulate themselves completely from GST. But of course the moment they want to avail themselves of any value added items or services, they would have to confront GST. That to me I think is fair.

For those of us who are familiar with the workings of UK's Value Added Tax, that I first came across in the 1970s, and GST of other countries, that I have encountered, we have found them to be a fairer tax system to income tax. But to understand why it is fairer, you just cannot run away from knowing and understanding the whats and the hows of GST.

Tony, I know you are supposed to be opposition. But that does not mean you oppose everything that the government of the day wants to introduce or impose. If all that you can offer in opposition is what you have written then I would say that the UMNO led government would be absolutely right in just ignoring it.

Overseas Malaysian said...

Fully agree, must stop all the blatant wastage of our public money first. I believe this alone will save heaps of money.

In the longer term, the income of Malaysians must be raised to move on to the next level.

In developed world, a McDonald worker can save enough money to travel the whole world in style, such is their income power. Whereas in Malaysia, the average income earner can count their lucky stars if they can fly with some budget airlines.

OTL said...

Dear YB Tony & my dear friends,

I roughly go through all the comments, first before we debate or argue on GST, do you all clear how GST function? Do you read through the preliminary research on GST?

I agree with Marcus63 comment, not matter how efficient a tax collecting system, a "project besar-besar" can tarnish of it. That is the points that I am concern. Not matter how big & smart the reservoir, when leakage of water, it will soon dry-out.

Kiat & Rajan R comments is good and agree with that. Old Fart comment is direct enough, but is reasonable.

Oversea Malaysian, comment is nice, but for me personally travel through budget air or luxury air is not important, as long as I am happy with my life that my ultimate goal. I do not hope that Malaysia become a duplicate of US, where the is number of peoples is bear with huge debts.

I am not an expert in GST, but I would share my knowledge with you all. I am just a 20+ "young" man, who not much exposure on politic nor business world.

Below is a simple example of GST:(from my blog GST)

GST (also known as Value Added Tax) is a multi stage tax, unlike the the current sales tax which is the single stage tax. Although GST involve multiple stage tax but it only cost to the final consumer.

For example, a consumer would like to purchase a wooden table, and standard GST rate apply:

1. Woods supplier:
Sales price : RM50.00
GST 5% : RM 2.50
Total : RM 52.50

Payment to Government:
GST Charged : RM 2.50
Less GST incurred: RM 0.00
GST Payable : RM 2.50

2. Furniture Manufacture:
Sales price : RM 150.00
GST 5% : RM 7.50
Total : RM 157.50

Payment to Government:
GST Charged : RM 7.50
Less GST incurred : RM 2.50
GST Payable : RM 5.00

3. Furniture Wholesaler:
Sales Price : RM 200.00
GST 5% : RM 10.00
Total : RM 210.00

Payment to Government:
GST Charged : RM 10.00
Less GST incurred : RM 7.50 (2.50+5.00)
GST Payable : RM 2.50

4. Retailer :
Sales Price : RM 250.00
GST 5% : RM 12.50
Total : RM 262.50

Payment to Government:
GST Charged : RM 12.50
Less GST incurred : RM 10.00 (2.50+5.00+2.50)
GST Payable : RM 2.50

5. Consumer :
Sales Price : RM 250.00
GST 5% : RM 12.50
Total : RM 262.50

As we can see for the above example, the GST will only cost the final consumer to pay the tax of RM12.50. If we assume woods supplier cost is RM 0, the woods supplier make RM 50.00, the furniture manufacture profit RM 100.00, the wholesaler profit RM 50.00 and the retailer also make RM50.00.

Would be appreciate if you all can correct me if anything that I comments is wrong and not fair.

OTL said...

One more points that I miss out from the previous comment, that what the government get from GST must be re-distribute back to those lower income.

Without this, I am totally disagree with GST. Conditional agree with GSTm that is with re-distribute back.

Benchmark from the country who have GST now.

I think most of us who read this comment can afford the GST even then do not return the taxes to us back, but not mean that the others can afford on it, especially the income earner who only earn few hundred per month and yet have wife and children.

Anonymous said...

GST is good, when implemented accordingly, it will benefit everyone due to the fairer distribution method of taxing the rich.

The only problem is, BN government is well known for its wastage. Claiming to be able to make RM1 billion from GST is not good enough, by not subsidizing petrol this 2010, the government has successfully saved a billion or more.

Wastage need to be stopped first before they implement GST.

Anonymous said...

Whatever tax the government introduces, if there is no transparency of how these revenue is used, or if there is any evidence of misappropriation, I know where my vote would go next. They'd better get their act together!

int said...

Just a general observation: a lot of Pakatan's long-term ambitions are admirable, e.g. eradicate corruption, increase per capita income, and to an extent Pakatan does have proposals to pursue these ambitions, but they never seem to address the short-to-medium term.

It is important to address the short-to-medium term as well. Without addressing the short-to-medium term, Malaysians who can vote with their feet will continue voting with their feet.

As someone else mentioned, we don't have to choose between GST and moving up the value chain, it's possible to have both. Moving up the value chain is the long-term end game. What effects will GST have in the short-to-medium term? Maybe not such a bad idea from that perspective.