GST Implementation in Malaysia – The Argument

There were many responses when the Malaysian government first announced the Financial Budget for Malaysia, year 2010, both good and bad. But when they were undecided about GST, it sparked more conversation on whether it’ll benefit the Rakyat, or further threaten poorer communities in Malaysia.

What goods GST covers

As proposed by our dear government, GST covers all types of goods & services sold to Malaysian & non-Malaysian residents (therefore consumers) except for a common commodities such as rice, flour & sugar.

This goes to mean: Whenever you walk into your favorite hypermarket with the family to get some groceries in the future, you will be charged additional ~{512b763ef340c1c7e529c41476c7e03bc66d8daea696e1162822661d30dde056} (the proposed additional 4{512b763ef340c1c7e529c41476c7e03bc66d8daea696e1162822661d30dde056}) on top of your bill except for certain controlled items.

Further, Malaysia’s main revenue shouldn’t just live off petroleum. In other words, we shouldn’t put all eggs in one basket because petroleum revenues have risks of its own, seeing that it’s a natural resource.

What reason did they give? More funds for development and expenses.

How much would they probably get? RM1 billion (RM1,000,000,000) per annum in estimated rounded-up revenue.

Will it hurt the poor & middle class?

To a certain extent, it will somehow affect pockets of middle and lower income group Malaysians.

The arguments:

  1. Recent price hike in petrol, prices of commodities have increased drastically. And now another one called GST?
  2. Income tax brackets for high earners aren’t as ‘expensive’ as middle-to-low income groups.
  3. The Malaysian government has saved approximately RM2 billion (RM2,000,000,000) by lowering fuel subsidies – What’s the take on GST now for lower income groups?
  4. GST is tax on SPENDING. Basically, everything from parking fees to purchasing mattress. Even with GST-exempted items, this would still hit lower income groups in Malaysia.
  5. Private sectors aren’t paying much to Malaysians – Other more developed countries such as Singapore could take this hit because wages & salaries are much higher.
  6. Other countries such as Britain, India, Hong Kong, Japan and Singapore has GST – Doesn’t mean GST has to be implemented in Malaysia. Their economic status and way of gaining revenue varies from Malaysia. (GST is also called VAT – Value Added Tax in other countries)
  7. Inflation may happen. Prime Minister Mr. Najib has guaranteed no inflation – But with the introduction of GST, the chain of ‘passing the cost’ will end up usually at the hands of consumers.
  8. Corruption isn’t a rare thing in Malaysia – So businesses has already included ‘corruption prices’ in goods & services. How does that not reflect additional costs to consumers?
  9. Out of inflation pressures, higher prices for goods & services are sought.

Prime Minister Mr. Najib has promised Malaysians that they will be tabling a public discussion on GST (called the GST Bill) on December. There are also several upsides that could be seen – But until Mr. Najib tables the meeting on GST Bill, we shouldn’t be skeptical of anything yet.

Other side of the GST story

GST has been said to promise a few things:

  1. Implementation will not be abrupt. It will be a slow & steady tax preparation so that individuals and small businesses will not be adversely affected.
  2. It will replace the 10+5{512b763ef340c1c7e529c41476c7e03bc66d8daea696e1162822661d30dde056} services and goods tax. This means taxes are lower now – Consumers need not pay more for one area, but it’s divided into many other source of ‘tax’ payments.
  3. GST rates are promised at 4{512b763ef340c1c7e529c41476c7e03bc66d8daea696e1162822661d30dde056}, out of the normal 10{512b763ef340c1c7e529c41476c7e03bc66d8daea696e1162822661d30dde056} or 5{512b763ef340c1c7e529c41476c7e03bc66d8daea696e1162822661d30dde056} charged in restaurants.
  4. Implementation will not occur until middle to late 2011 or 2012. Planning time is essential to not put ‘inflation pressure’ on small businesses.
  5. Government’s coffers will increase. This will enable further development and budget control to the country, other than relying just on petroleum or income tax revenues.
  6. Tax when consumed, not when earned is much better. It allows better control. Spending influences will be “Careful” and “More controlled” when purchasing on higher prices are made rather than “taxable incomes” generated from work.
  7. It’s a broad-based tax system. Some items may be slightly more expensive & cheaper. It’s not a overall standardized taxation method.

Your opinion on GST

Of course, there are many pros and cons of the new GST system – And the implementers should look more intricately into all income groups, balance their sheets and understand what are the effects first. While we can only propose so much, there’s only so much we can do.

Here are some of the ‘preparation techniques’ the tablers of the GST Bill can adopt:

  1. Be intricate with details: Tax is a complicated subject, like a science of its own. If you make the subject complicated, it may lead to more misunderstandings and later, more arguments.
  2. Introduce ‘layman terms’ for further understanding. Giving examples always help. Examples on implementations always help. Tell a story to the public – And make it make sense to them.
  3. Use other form of publicity media: Tabling the GST Bill on national newspapers and mass media isn’t going to cut it. Find other means such as introduction campaigns Malaysia-wide.
  4. Engage community understanding: Allow certain private and public (individual or company) figures to table talks and debates on GST Malaysia-wide. This encourages engagement and allows more problems & solutions to be seen.

The Malaysian government or finance department has a long time more (approximately 15 – 20 months) to table talks around Malaysia with regards to GST.