GST Revisited & Related Stuff

My comments in bold.

easystar said...

Hi Salvatore Dali,

Interesting - thought you are a Democrat and Democract hates GST as it is less progressive.

The solution to tax evasion should really be to hire more good inspectors rather than introducing GST.

Nah..GST is also prone to evasion, and worst, false refund claim. UK suffers from several billion pounds of false refund claim - when that happens, it transfer wealth from law abiding consumers and productive business to the fraudster.

Also, GST is not really a consumer tax, it is a half business, half consumer tax as it affects the price that can be charged by businesses.

The best form of government revenue is in fact from natural resources like oil or from land. Unfortunately, of course, that does not last forever and given the other alternative, I am not against a low level (i.e. sub 10% of GST) but anything beyond that can be fairly distoring (encourage smuggling, evasion etc). I would prefer a Land Value Tax over GST if given the choice. (Hong Kong and Singapore practises a form of LVT)

Also, can't see how introducing GST will transform malaysia into a high income country. The PEMANDU/Transformasi project is a small step forward but the compete or die motto will probably be more effective to transform Malaysian into a high income country,

Yes, I agree there will be loopholes and there will leakages and poor enforcement. Do you stop sending your child to learn piano because, let's face it, he/she is not talented enough to be a professional. The GST is a must idea, it must be implemented, just because we all know that we have frittered away tons of money via corruption and other ways does not and should not stop us from implementing the GST. We basically have no choice. Even if we start to crack down successfully on 99% of corruption, we are still left with a gaping deficit and an uncertain future and means of funding our spending. Hence, let's put it up first, and put GST on the same list of our agenda on things that need to be monitored, managed professionally and with transparency - such as the police force, the MACC, the subsidised industries, the judiciary ... now you just add to it the GST.

ebisunishi31 said...

Is this a result of having a government with a weak mandate in power?
The shocking number of U turns recently does not bode well for Malaysia.
I fear for what this will mean for the soon to be proposed NEM. The things that we need to fix overall in our economic management will require much more pain compared to the gradual introduction of a consumption tax like the GST.
The opposition here have done the country a great disfavour. Although I agree that plugging leakages and stopping wastage will go a long way in bring down the deficit but there still needs to be an alternative tax source.

The pols need to get the message across that it is not that they do not want to countinue lavishing the a select group with unending rents, it is just that the country cannot afford to anymore.

Very good point, I will elaborate later in the posting.

soonyeah said...

I totally support GST and also removal of subsidies. It is a bitter pill to swallow but in long run it is good for Malaysia. One condition that I would expect income tax to be reduce on par with the regional. Additonal, I read that 10% of workforce actually paying tax. I see the tax scale need to be review.I believe most of the tax paying citizen are already on the high side of the bracket. The golden goose is getting very tired.

STOCKAHOLIC said...

GST Sounds good, but what happen if they don't use it wisely?

Expect high inflation in coming year due to GST, businessmen will add the GST into their goods..

Studies have shown, and even in places where they have implemented GST that there will be a one off price jump and things will settle down after that. We are not doing something EXTRAORDINARILY NEW and UNTRIED.

Suddenly we have these truckloads of delays in these supposed reforms we are supposed to be having. Now suddenly all not on time and not necessary? Are the delays caused by election concerns - if they are then I am very disappointed, again we have a government that promises so much but still kowtow to votes, I am not saying the votes are not important, its that we have pathetic political will to push through NECESSARY reforms. When you are an effective leader, sometimes you have to make the unpopular decisions, anyway, the next elections need not be called till 2013 - there is plenty of time to do what is right, do what is pertinent, instead of pandering to the masses or fearing that the opposition will have more ammunition with these unpopular moves.

The next general election does not have to be held until 2013, but could come as early as 2011 to coincide with elections Sarawak, a government stronghold that supplies 30 of BN’s 137 lawmakers. Najib vowed last year to reform public finances in order to cut the budget deficit to 5.6 per cent of gross domestic product in 2010 from 7.4 percent of GDP in 2009 and pledged to tackle a subsidy regime that accounted for 15 per cent of all federal government spending in 2009.

The delay in GST signaled the end of meaningful fiscal reforms until after the next elections. Over the past three weeks, we also have the postponement of electricity price rises and ended plans to hike subsidised petrol prices. Now we have also effectively delayed announcing its New Economic Model (NEM) when Najib announced a two-stage rollout of the ambitious plan to turn Malaysia into a high-income nation based on innovation and creativity.

We need:

a) a GST by 3Q 2010, with strict implementation and monitoring, with heavy penalties, must be vigilant - I know thats a tough ask, and implement a corresponding 2 percentage points cut in corporate and personal income tax.

b) we should still implement a hike in petrol prices according to a car's cc. No need to do the card reading, ID tracking, all that seems to be trying to enrich somebody with that kind of clumsy hardware and software. We already have a system in place, our road tax already taxes according to a car's cc - just tag an additional RM1,000 for cars 2001cc-2500cc, add RM2,000 for cars 2,501-3,000cc, above that put in RM5,000. You can tweak the figures to whatever amount you want to collect in the end. Sssooo... simple.

c) We need a tariff plan and formula that will allow electricity prices to be passed onto the users. Having said that, we will need a gradual removal of subsidy for oil, gas and electricity USED and CONSUMED by companies (not individuals) - why are we still subsiding them. There will be grave aftershocks if we pull the rug all at once, so do it with a plan: 1/3 subsidy removal from 1.1.2012, another 1/3 from 1.1.2014 and total removal from 1.1.2016 - and then watch our budget deficit problems eradicated drastically.

All of that will remove the reliance on oil royalties and our narrow tax base. You have till 2013 ... don't worry about the elections yet... do the hard stuff NOW. We need to see real political will to push these through, not sloganeering.