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| How the Cake Crumbles |
While they are pros and cons of such a wide-ranging tax, the weight of the tax will in all likelihood be placed on the already burdened lower income group.
This article, likely abridged from the Malaysian Insider article of Trinna Leong tells us more about the effects of GST.
GST targets a
bigger group but poor hit most, say economists
October 26, 2013
Putrajaya’s
decision to finally introduce the Goods and Services Tax (GST) is a regressive
move that would largely hurt poor and debt-ridden Malaysians, say economists.
While
they lauded the government's move to abolish the Sales and Services Tax (SST)
for the GST, the economists argued that the consumption tax of 6% effective
April 1, 2015 would in fact do more harm than good in the long run.
“This
is a regressive tax where the poor would be taxed more than the rich,” said Lim
Mah Hui, from the Socio-economic and Environment Research Institute (SERI).
The
lower income group would have to fork out a bigger chunk of their wages in
terms of percentage compared with the rich, forcing the poor to pay a bigger
percentage margin to the government in the form of the GST, he told The Malaysian Insider.
"The
effect to the lower income group is neutral," The Prime Minister told a
press conference in Parliament.
Economists
said that a low income household earning roughly RM1,800 a month would have to
spend more of their pay for necessities, a fact which Bank Negara noted in its Outlook and Policy 2013 report on the
BR1M.
The
report mentioned that based on analysis, “lower income households are more
sensitive to income shocks” and that the poor “tend to have lower savings as
most of their expenditures are for necessities”.
By
pushing forward with the GST, the government would reinforce investor
confidence but burden the people in the long run.
“With
a definite GST rate, the market would receive it positively,” said Edward Lee,
regional chief economist at Standard Chartered.
Institut
Rakyat economist Azrul Azwar Ahmad Tajudin said Putrajaya deserved credit for
abolishing the SST instead of running the taxes in parallel but added that the
government needed to ensure that it can enforce the GST effectively.
“I'm
not certain if the committee tasked to oversee the implementation of GST would
have the teeth to enforce the GST on traders, manufacturers so as to curb
inflation,” Azrul said.
“In
the past, the trend with enforcement has been lacking in Malaysia. It makes you
think if enforcement would be better now than it is in the past.”
The
GST would require an input and output of tax to be enforced at every level of
the supply chain, a tedious and complex task which pundits have said may not
work in Malaysia.
But
more importantly, the brunt of the tax will be spread out to the consumers, a
harsh reality that many Malaysians would not appreciate, they added.
“While
this is an efficient tax, we must remember that 80% of Malaysian households are
in debt,” Lim from SERI cautioned.
According
to financial analyst Jesse Colombo, a columnist at Forbes magazine, Malaysia’s
ratio of household debt to GDP hit a record of 83% – the highest household debt
load in Southeast Asia.
With
the GST, Lim believed that Malaysians would continue to spend more than they
earn – a prediction that does not bode well for a country that has 41% of its
population between the ages of 25 to 54.
The
economists’ warning brushes off the government’s insistence that the GST would
reduce the tax burden on the people, especially the low income group, through
tax exemptions.
“What's
the need to give the BR1M RM300 one-off payment if the government insists that
there won't be an inflationary impact?
