Sunday, 14 March 2010

I never said GST is bad

I think there is a need to make this point clear. I have never said GST itself is bad. It is an efficient tax collection mechanism, one that ensures an equal spread of tax burden. Just like how some readers have highlighted, GST is currently functioning in many countries. It would appear that it has a proven track record and hence, we shouldn’t be complaining about GST.

The above are all true, I wouldn’t disagree with them. In fact, I would even say that GST is good.

However…

Just like a friend of mine said… GST is good in “chaotic and racist countries” like UK, Australia, Singapore, etc… but for a “beautiful” country like Malaysia, GST is no good.

Consider this… is democracy good? It certainly is… but is democracy in Malaysia good? I hope you get my drift.

For a start, it is claimed that only 15% of Malaysians are tax payers. The rest are either retired, which means they enjoy tax exemption, or their income are below the tax paying range. When GST comes into the party, everyone will have to pay tax. Is GST good in this situation? It is good because it spreads out the tax collection net and increase govt revenue, but it’s bad because a lot of people who don’t really need to pay tax will now have to pay tax.

Certainly; more tax revenue collection for the govt under a normal situation, is a good thing. It means the govt have more money for development of the country. But for a beautiful country like Malaysia… do you think they will use the money to develop the country and improve things… or will they use the money pay commission for buying submarines that can’t dive?

Right now, some of you might be thinking… GST, proposed at 4% is supposed to replace sales and service tax of 10% / 5%, surely such a reduction in rate will benefit us…!

I am not going to go into the detail mechanics on how GST, despite only at 4% will still result in us having to pay more tax. The bottom line is, govt is going to collect an additional RM1b from GST. Please note the keyword “additional”. I am not going to elaborate further.

Next, GST will result in additional cost for businesses. This happen in all GST/VAT countries. As to why companies will incur additional costs, I have already blogged extensively about it.

In other GST/VAT countries, there is strict enforcement to ensure that additional costs arising from GST will not be cascaded to consumers. If they find any companies cascading such costs to consumers, these companies will be in trouble.

Now, for a beautiful country like Malaysia with their very civic minded businessmen, do you think companies will refrain from cascading GST costs to consumers? And, do you think our super efficient law enforcers will ensure that consumers’ interest will be protected?

Last but not least, we are talking about a beautiful and efficient country like Malaysia trying to kick-start a very complicated and sophisticated tax regime. The last time something like this was done was the implementation of self-assessment for companies. It was a huge mess. Till today, there are still some grey areas that are not fully addressed. Will the implementation of GST be properly done? Only God knows.

There are many more things that I can write about. But I am sure you already know what I am trying to get at. Besides, I am tired of hitting the same nail again and again.

So just let me reiterate… GST is not a bad thing. It’s a good tax regime, designed with an effective and efficient tax model. But when mix GST with Malaysia, that’s when the equation takes a whole new dimension.


2 years ago…
The conversation with the driver

3 years ago… A very misleading document

15 comments:

deus X machina said...

Agree with this entry Zewt

I think, govt. can implement GST only when more than 70% Malaysian are tax payers...

Terra Shield said...

Maybe we're just not ready for it...

hasilox said...

GST is a good way to tax visitors. The downside is that a millionaire pays the same GST as a beggar for basic commodities. Can the poor afford a higher living cost?

pavlova said...

well zewt, most of the "chaotic" (tsk tsk) countries you mentioned which have GST, also have minimum wage.
when the go-men decide to increase GST they also will have to increase minimum wage.

NZ recently just called for the increase of GST to 15% but will also give tax cuts to most of the people, so that it can compensate the hike in your everyday shopping price tags.

They have also just increased the minimum wage not too long ago to about $13 an hour.

But well for companies who want to earn heaps of money, then of course there is no point in having a minimum wage. So obviously consumers will have to bear the brunt of the GST hike at the end of the day.

Pinknpurplelizard said...

I'm with you on this.

And... Its that time of year we all do our taxes too. Thank goodness for e-filing which is so much faster and convenient. Which only lessens the yuck factor of doing taxes by a little.

missironic said...

Agrees with u on this Zewt!

goingkookies said...

i do so enjoy reading ur posts..

insightful and interesting perspective..

loved the..
" or will they use the money pay commission for buying submarines that can’t dive?" part...

fufu said...

disagree.......... i so dont wanna pay more... no gst pls!!! the more we give the more they will get ><

Tsu Lin + + said...

I love how you just reminded me of how beautiful Malaysia is. Oh, HOW I MISS MSIA with all it glory! How i dread this "chaotic & racist" country I am in and want to just fly back to my non-chaotic & very non-racist M'sia.

Anyway, back to your article, you said
In other GST/VAT countries, there is strict enforcement to ensure that additional costs arising from GST will not be cascaded to consumers. If they find any companies cascading such costs to consumers, these companies will be in trouble.

I am not very familiar with financial terms but when the UK Gov raised the VAT back to 17.5% from 1 Jan 2010 (from 15% for about a year), all retailers have to charge the extra 2.5% back to consumers, when you shop in Tesco, you will see signs that say this. Vice-versa, when they decided to cut the VAT from 17.5% to 15%, the consumers enjoyed the "extra savings" too. Not sure if this is what you meant.

flaminglambo said...

GST/VAT is a consumption tax. The consumer is suppose to foot the bill.

Companies will still maintain their profit margins because the tax is essentially borne by the consumers. The extra cost for the implementation of GST may be passed on by some, however, the market will usually put pressure on companies that do because the consumer will walk straight to the competing companies with a better price.

As for monitoring and prosecuting excessive/opportunistic price rises by monopolies/duopolies, etc on price rises? I think you have a better chance of seeing MJ at your local mamak enjoying a Ramli burger with Elvis.

One of the main reason for the GST is to curb the black economy like the many cash businesses that can declare whatever they like on their income tax (if they actually file one). The irony is that the biggest culprits of the black economy are - well, I'll let you fill in the blanks.

You'll see more and more accountants getting botox because they're smiling so much that they're getting wrinkles.

Faisal Admar said...

i read this somewhere:

"Whether you are an accounting firm, small business, charitable organisation or school, GST will likely affect some or all of the transactions in your organisation.

Will you let it sneak up on you or will you prepare now to take control of it for your business and your clients businesses?

GST can potentially disrupt cashflows of a business, slow operations and ultimately affect the going concern of a business."


er.

InjusticeSistem said...

RY :
U all dont see da big picture la....if gomen don tax more, how can we sustain
1) da high cost of running 3rd class uni
2) da high cost of employing all these 3rd class student into gomen civil service
3) da high cost of subsidies
4) da high cost of maintaining my 4 wives n 8 mistresses
5) da high cost of driving my porsche n wat not
6) da high cost of buying properties in Aus n UK for us UMNO

You see ah, once da gomen no money to pay for dis, ppl will no go uni no got job...n den u noe wat will happen,certain brown skin ppl(ie UMNO/Perkasa) will mengamok...u noe wat is mengamok or not?
wen ppl mengamok u yellow n black skin ppl can close shop no more bisnis to do,u noe or not?
so consider like dis la....u yellow skin n black skin ppl practise dis pay protection money to gangster wen u do bisnis kan....
so just pay tax as protection money to us gomen la....no we r not gangster, we r gomen,gangster illegal,gomen can legally collect protection money from u ppl
ok so now u ppl don like GST, ok la i change another name la, but it will stl be tax....ok or not? aiyaa not ok u stl hv to pay tax la,no more discussion ok, don challenge us....kita pantang dicabar ok!
.............

Rep:
Den wat abt brown skin ppl,dey also hv to pay GST rite?

RY:
aiyooo u ppl ah,always want equality dis n dat, now we satu kali blanket tax all color ppl including brown skin, now its fair ok,stl not satisfy ah.....aiyaa u ppl ah....want me to change mode again ah?

*The above is part of an interview conducted by our reporter(Rep) with politician Rice Yetim(RY)*

"Joe" who is constantly craving said...

in any case, u will paying 7% gst down there..so haha be happy..

zewt said...

deus X machina - 100%!

Terra Shield - it's looking more like a political ploy.

hasilox - can even the middle income afford it?

pavlova - malaysia does not have any other cutting edge besides cheap labour... and now, cheap professionals... if there is a minimum wage... finish.

pinknpurplelizard - hahaha... provided the system does not fail us.

missironic - let's drink to it! :)

zewt said...

goingkookies - or public toilets worth 800k each which are all now... gee, where have they gone to?

fufu - and the more will be wasted :P

Tsu Lin - nope... that's not what i meant. in certain industries, the business will suffer the GST, due to unclaimed input tax. have to read my other articles on input tax to understand it :P... it's the embedded GS :)

flaminglambo - hahahaha... not accountants... but tax consultants... like... ahem...

Faisal Admar - and all the embedded cost... who will bear?

InjusticeSistem - yorais! hahahahaha... tax as protection money... now, that's really quite a good analogy.. hahaha...

constantly craving joe - but do u know what is my effective tax rate? :)... it's single digit mate...