Learn from Japan’s tax folly and defer GST, says DAP lawmaker

Putrajaya has said most food items will be spared the GST but its critics say it will hit the bottom 40% of Malaysians the hardest. – The Malaysian Insider file pic, November 19, 2014.

With Putrajaya ready to implement the goods and services tax (GST) next April, a Pakatan Rakyat lawmaker points to Japan as a reason the government should postpone it.

Kluang MP Liew Chin Tong said growth in Japan’s economy had turned negative after its government hiked up its version of the GST, the national sales tax.

Raising the sales tax from 5% to 8% at a time when the economy was fragile had reduced consumer spending and killed any potential of growth, Liew said.

Both the Japanese and Malaysian economy depended significantly on domestic consumption, he added.

“When consumption is taxed, it eats into the already meagre disposable income of consumers, hence discouraging consumption.

“It was a major shock to Japan that the April sales tax hike could damage the economy so much,” Liew said in a statement here.

“Prime Minister Datuk Seri Najib Razak must do his best to understand the lessons from Japan's precarious move and defer the introduction of GST indefinitely.”

The Najib administration is poised to introduce a GST of 6% to replace the combined sales and service tax of 16% in April.

The GST will tax almost all forms of items and services and its critics have claimed that it will hit the bottom 40% of Malaysians the hardest.

Putrajaya, however, has assured the public that basic necessities, such as most food items, education, public transport and healthcare will not be taxed under the GST.

“I have previously warned that the introduction of GST will cause stagflation – where inflation and stagnation happen the same time,” said Liew, who is also DAP political education director.

“The Japanese lesson is so clear that even the dumbest policy maker can now see the perils of introducing a sales tax at a time of slow growth.”

Liew said Japanese Prime Minister Shinzo Abe had to call for early elections yesterday, after only two years in office, because of the effects of the country’s higher sales tax.

“Abe is now calling for elections on the platform that he needed a new mandate to postpone a second sales tax hike from 8% to 10%, originally scheduled for 2015.

“There is a new element for the Malaysian government to ‘Look East’ towards Japan, and it is this: to not to repeat Japan’s folly to introduce consumption tax when the economy is fragile.”

- TMI