The Rationale for the Implementation of GST
By: Lit Jhun Yeang,Benjamin
Japanese Prime Minister Shinzo Abe
took a huge risk by raising Japan’s goods and services tax (GST) rate from 5%
to 8% during its economic recovery period because he believes that a
broad-based revenue collection system is needed for sustained economic growth.
(Fong, 2013). In Malaysia, Prime Minister Najib Tun Razak announced that GST
will be introduced with effect from 1st of April 2015 to replace the
current sales and services tax (SST). GST is inevitable if a nation wants to achieve
high-income and developed status and be more competitive in the global market.
Hence, I believe that Malaysia has made the right decision to implement GST
because of its ability to boost the national economy, levy a fairer tax
equitably and reduce business costs.
First and foremost, GST has the
ability to spur economic growth because it increases the tax base and hence
maximizes revenue collection and minimizes fiscal debt. The Ministry of Finance
(MOF) expected 0.3% growth in our country’s GDP at 5% GST rate. (Borneo Post
Online, 23 September 2013). Furthermore, as government revenue increases, the
decrease in personal and corporate taxes can be realized by widening the income
tax bracket so that people could work harder to achieve a higher income and our
country could attract more foreign direct investments (FDI). Next, 80% of the
domestic capital goods were sent overseas to avoid heavy taxation. (Idris, J.,
2013). This can be prevented, because under GST, complete and proper records
are kept and firms will have almost no way to evade taxes on capital goods and
have to contribute to government coffer.
Secondly,
GST, which is a fairer tax system, taxes consumers based on their spending and
not their income. According to the Inland Revenue Board, only 5.6% of the
population in Malaysia is taxpayers and only one quarter of the employees pay
income tax. (The Star Online, 2014). This shows the necessity to implement a
tax which is broad-based and can enforce tax compliance. On the other hand, GST
eliminates the cascading effect of SST, which would incur up to a 16% rate on
products because consumers only pay a 6% flat rate incurred at the final
consumption stage. Additionally, GST allows businesses to claim input tax
credit incurred on expenses easily by automatic deduction in the tax returns
and to get rid of the hectic procedures needed to obtain tax exemptions and
credit under the present SST. (Royal Malaysian Customs Department, 2013). GST also
benefits businesses by offsetting multiple tax effect and reducing production
cost.
Some critics mentioned that it
would be the low and middle income groups who will suffer the most after the
implementation of GST. They state that GST is a regressive tax which imposes a
greater tax burden on the poor because the poor spends a higher proportion of
their income on consumption. However, the government announced that basic
necessities such as food, public transportation, health services and education would
not be taxed. Apart from that, the MOF recommended a sales threshold of RM500000
for GST to effect on business establishments. (Lim and Ooi, 2013). Therefore, it
can be argued that low-income households are quite lifted from the burden of GST
after accounting for the exempted and zero-rated supplies because the tax
burden for a household with RM2000 monthly income is only RM39.16 per month at
6% GST rate. This is because merely 32.63% of its total expenditure is spent on
standard-rated supplies. (Khazali, A., 2014).To further mitigate the impact of
GST, the government has developed several financial assistance programs such as
BR1M and SARA 1Malaysia to help the needy citizens.
Based on the above arguments, it can be seen that GST is extremely vital
to lessen budget deficit and raise national income and to tax consumers and
businesses more reasonably by reducing their tax burdens. The Malaysian government
should do a better job in communicating the benefits of GST to the public by
putting up more billboards, publishing more GST-related articles and organizing
more seminars and conferences. Also, it is important for the government to
manage and spend the tax revenue wisely so that it could also be used develop
the nation.
(666
words)
References
Borneo post online. 23 September 2013. GST critical to increase revenue, reduce budget
deficit, viewed 19 May 2014, < http://www.theborneopost.com/2013/09/23/gst-critical-to-increase-revenue-reduce-budget-deficit-analysts/>.
Fong, C.O., 2013. Merits of the GST system. The Star. [online], Available at:<
http://www.thestar.com.my/News/Nation/2013/10/05/Merits-of-the-GST-system-Its-the-fairest-method-of-taxing-general-public-and-can-fuel-economic-growt.aspx/>
[Accessed 16 May 2014].
Idris, J., 2013. Why goods and services tax is vital. The Star. [online], Available at:< http://www.thestar.com.my/Business/Business-News/2013/10/21/Why-GST-is-vital-It-will-broaden-the-tax-base-and-help-those-most-in-need/>
[Accessed 20 May 2014].
Khazali, A., 2014. Is
the Malaysian goods and services tax regressive?. The Star. [online], Available at:< http://www.thestar.com.my/Business/Business-News/2014/04/07/Is-the-Malaysian-GST-regressive-The-GST-aims-to-overcome-the-inefficiency-of-the-indirect-tax-syste/>
[Accessed 20 May 2014].
Lim, K.H. and Ooi, P.Q., 2013. Implementing goods and services tax in
Malaysia, Penang institute. [online],
Available at:<http://penanginstitute.org/gst/GoodsServicesTax_20131008.pdf>
[Accessed 20 May 2014].
