With proper management, Malaysia does not need GST – S. Ramakrishnan

The much-despised and repressive goods & services tax (GST) is finally here to drain our pockets further.

Despite the appeal from many quarters to postpone it, the government went on and implemented the GST collection as per schedule. After deliberating for 23 years, the Ministry of Finance (MOF) has finally implemented GST at 6% at every stage of the supply chain.

In 2014, the MOF had scrapped subsidies for fuel, electricity and sugar. Then, in 2015, the GST was implemented to increase revenue so that the high fiscal deficit incurred continuously for the past 16 years, would be narrowed and to reduce the high public debt to gross domestic product, or face the risk of lowering sovereign ratings by rating agencies.

Unlike Malaysia, Singapore and many other countries introduced the GST as part of a larger tax restructuring exercise to shift their reliance on direct taxes to indirect taxes.

Singapore's GST was introduced on April 1, 1994 at 3%. It was increased to 4% on January 1, 2003, then to 5% on January 1, 2004 and finally to its current rate of 7% on July 1, 2007. In Singapore, the threshold was set at an annual turnover of S$1 million (RM2.6 million) while the threshold in Malaysia is RM500, 000, to be GST-compliant.

The lower threshold for GST compliance in Malaysia means an increase in the number of businesses collecting the GST.

The option to increase the GST rate is left to the minister of finance. There are suspicions whether traders are raising prices arbitrarily and taking advantage of the initial uncertain period. It will take a while before clarity and confidence set in.

Consumers across the board feel the pinch when they eat out or when they make purchases. The working class are unhappy and are complaining of price increases.

The Malaysian corporate tax will be reduced from 25% to 24% and from 20% to 19% for medium-sized enterprises from 2016.

In comparison, Thailand has brought down its corporate tax rate to 20%, while Vietnam is also scaling back to a 20% corporate tax rate from 25% by 2016. Singapore’s corporate tax has been fixed at 17% since 2010.

The successful implementation of Malaysia's GST depends on neutral, fair and corruption-free enforcement.

The GST is expected to bring in RM24 billion in revenue, replacing the current RM13 billion from SST, from which RM3.8 billion is for exempted goods and RM4.9 billion is to be paid as BRIM, leaving behind about RM700 million in the government's coffers. More GST revenue is expected to flow from next year onwards.

In many countries, people do not grumble about or grudge contributing to the GST because of the efficient usage of GST collections to subsidise medical care, senior citizen care, efficient government delivery systems and affordable high-quality education systems for their citizens. Malaysia too has to rise up to its people's expectation for more social safety nets and better delivery systems.

The annual Auditor-General’s report on government usage of public funds shows no improvement all these years. Public funds are simply wasted and squandered.

The prime minister’s 1Malaysia initiative to transform the government delivery system has come to naught. How then will people pay the GST without any reservation?

Given the recent 1MDB fiasco and the history of imprudent and unaccountable spending by the government which has landed it with high debts, the public is sceptical about how the GST revenue will be spent.

The indiscriminate undertaking of loans by GLCs with government guarantees does not instil confidence in the government.

Recently, the social media exposed another MOF GLC Pembinaan PFI debacle, with RM47 billion in loans apart from the RM42 billion 1MDB loan. High house prices and car prices, poor public transport, high cost of living coupled with low and stagnant wages have made Malaysians poorer and more indebted. On top of that, we have to pay the GST.

That’s why the opposition maintains that with proper management of our public funds, Malaysia doesn’t need the GST.

Can the government improve public transport, reduce house prices, improve medical care and reduce prices to justify the implementation of the GST? Malaysians are getting impatient and want improvement without excuses straight away. The GST can be a double-edged sword for the government.

* S. Ramakrishnan is a former senator.