Three letters, one taxing burden for Malaysians

When the declining ringgit fell, many families with children studying abroad were faced with the grim possibility that they could not continue to fund their studies. — Picture by Farhan Yusoff
When the declining ringgit fell, many families with children studying abroad were faced with the grim possibility that they could not continue to fund their studies. — Picture by Farhan Yusoff

KUALA LUMPUR, Dec 18 ― The Goods and Services Tax (GST) came into effect on April 1, with the aim of diversifying the government’s source of revenue, streamlining accounting and reducing tax fraud.

“GST will have a positive impact on the economy and country in the long-run,” said Federation of Sabah Manufacturers president Datuk Wong Khen Thau.

“The revenue from it will go towards development and benefit the people. As responsible citizens wanting to see the country progress, we should not see the GST as a burden but instead support its implementation.”

Concerns

First proposed in 2009,  the GST was delayed due to criticism of its impact on low-income groups. However, post implementation of GST saw even the middle class feeling the pinch of rising prices.

In Budget 2015, it was estimated that GST would rake in RM23.2 billion. During Budget 2016, Prime minister Datuk Seri Najib Razak announced the tax had since brought in RM39 million.

There were concerns raised before its implementation, specifically on Malaysia’s economic structure deemed unconducive for a general tax.

Unlike the Sales and Services Tax, GST is charged on the consumption of goods and services at every stage of the supply chain, with the tax burden ultimately borne by the end consumer.

Kluang MP Liew Chin Tong cited Japan as an example of how a general tax would cause economic stagnation rather than increase growth.

“Raising the sales tax from five to eight per cent reduced consumer spending and killed any growth potential,” he said.

“Malaysia's economy depends on consumer spending. The GST chips away at the disposable income of the rakyat and this will put a damper on demand.”

Implementation

The GST start up phase caused businesses across the board to stumble. Small business owners earning a minimum of RM500,000 had to register for the tax and acquire new software.

Norhayati Ismail, an accountant for a small advertising firm in Kuala Terengganu, had to travel to Kuala Lumpur to purchase the software and said business was adversely affected by the tax scheme.

“We have loyal clients but payment can take a long time. Under the GST, the Customs Department will collect taxes every three months based on our projected earnings.

“If we do not receive payments on time, we have to fork out our own capital to pay the GST, which is our major concern,” Norhayati said.

Large businesses, such as telecommunications giant Maxis, also faced issues especially with GST charges for pre-paid top up.

Users went from paying RM10 to RM10.60 for the same airtime. There were proposals to charge consumers RM10 and deduct the six per cent upon activation.

“The government views this as fair as the tax is only deducted upon usage,” said then communications and multimedia minister Datuk Seri Ahmad Shabery Cheek.

After several flip-flops, Ahmad Shabery announced that consumers would pay RM10.60 until a mechanism could be worked out by the end of this month.

Profiteering

The cost of living has risen dramatically due to GST and consumers are reeling under the weight of the additional financial burden.

After implementing GST, there were numerous reports of profiteering. Thousands of consumers lodged complaints with the domestic trade, co-operatives and consumerism ministry.

The rise in prices prompted frantic enforcement by the ministry, with 169,440 checks in April alone and the government's GST spokesman Datuk Ahmad Maslan warned of stern action.

“If there is no action against any errant traders, they will do as they please, thinking it is okay to indiscriminately raise prices. It’s wrong to do that,” Ahmad said.

Despite enforcement, the price of goods had risen between 10 and 30 per cent but this was also due to other factors including a general slowdown of global economies and the ringgit's poor performance.

Mitigation

The government are taking steps to regulate the impact of the cost of living and to ease the burden on consumers by zero-rating selected goods and services.

Among goods zero-rated are staple foodstuff such as rice, sugar, salt, cooking oil and poultry. The first 200 units of electricity and the first 35 cubic metres of water are also exempted.

Domestic transport of passengers ― by rail, bus or taxi ― are GST exempt services. Financial services, highway toll fares and the sale and rent of residential property are also GST exempt.

Conclusion

With revenue from GST, the government will have more money to build schools, hospitals and infrastructure.

The prime minister recognised initial problems with the tax implementation but was optimistic about its benefits when tabling Budget 2016.

“As a responsible government, we will continue to make the right decisions, though not popular, in the best interest of the rakyat and nation,” he said, adding the government would “hold its course on the issue”.

Najib also announced additional measures to ease the impact of the tax, such as zero-rating additional food items and teaching materials as well as working out a mechanism to channel GST on pre-paid cards to consumers.

National Professors Council political chief Mohamed Mustafa Ishak said Malaysia could not have avoided implementing the GST as no country could afford to rely solely on petroleum revenues.

“But to reassure voters, the government must continuously ensure proper implementation and show that the taxes collected are spent wisely,” he said.

GST has been problematic during its introduction and implementation, but the rationale behind it will benefit Malaysia and reduce the country’s dependence on traditional sources of revenue.

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