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Malaysian opposition's proposal to do away with GST unsound: Experts

KUALA LUMPUR — Tax specialists have defended the goods and services tax (GST) that the opposition Pakatan Harapan (PH) has proposed to eliminate, saying the move was counterproductive as the regime was both fully established and preferable to the system it replaced.

Reuters file photo

Reuters file photo

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KUALA LUMPUR — Tax specialists have defended the goods and services tax (GST) that the opposition Pakatan Harapan (PH) has proposed to eliminate, saying the move was counterproductive as the regime was both fully established and preferable to the system it replaced.

Tax expert Veerinderjeet Singh of business consultancy Axcelasia warned that such a move would also cause unease among the business community as it would lead to uncertainty regarding the federal government’s policies.

“In my view, if the tax is working well, there is no rationale to abolish it. In fact, what should be done is to tweak the existing GST to make it even more efficient,” he told Malay Mail Online when contacted.

Mr Veerinderjeet was responding to the opposition pact’s alternative budget for 2018, where PH claimed it could not only cover the loss of revenue from eliminating the GST, but simultaneously record a RM6 billion (S$1.93 billion) surplus.  

PH estimated a net loss of RM25.5 billion in 2018 should the GST be removed, and said this could be made up with increased revenue from corporate income taxes due to a consumption boom and growth in business activity that it expects while also promising a minimum wage of RM1,500.

After eliminating the GST, the pact said it would revert temporarily to the sales and services tax for an unspecified adjustment period.

Mr Veerinderjeet pointed out, however, that the GST was superior to its predecessor as it contained stronger safeguards against tax evasion, such as requiring stricter reporting and record keeping that made it easier to audit firms.

“As the GST has been in force for a few years and is functioning well, the additional revenue that is generated coupled with whatever savings that can be generated by cutting down operational expenditure can assist in allowing the country to achieve a surplus budget,” he added.

“The needs of citizens in terms of catering for old age and health as well as the educational needs of the country require that a surplus budget would be needed and the GST can assist in this.”

Tax lawyer S. Saravana Kumar also called for retaining the GST, suggesting that the proposal to abolish the broad-based consumption tax was populism.

Rather than disrupting the economy with the GST’s removal, he said it would be preferable to extend direct cash aid to the groups that most needed financial assistance to mitigate the effects of the tax.

“Abolishing GST will send a wrong signal to businesses and investors who have spent millions of ringgit to install the GST software, et cetera. A responsible government shouldn’t abolish something for the sake of popularity but must balance this against the long-term interest.

“Pakatan is stating that they will abolish GST for now, but they are not guaranteeing that they will never introduce GST. They may change their stand on this matter later and decide to introduce the tax,” he told Malay Mail Online in an email interview.

He also questioned PH’s strategy to tackle tax evasion, noting that the GST is used expressly to detect and address such activities.

Mr Saravana also disagreed with PH’s proposal to increase personal income tax rates of high-income earners, saying it would be a disastrous move.

He noted that high-income earners such as professionals, business leaders and entrepreneurs should not be penalised for their success, and warned that such a move would encourage brain drain.

“To be fair to the government, it held many consultations and briefings before introducing GST. It was not a sudden move made by the government and this government made the bold yet responsible move to introduce GST.

“As Pakatan has yet to conduct similar consultation with stakeholders, it should first study whether GST actually burdens the rakyat or if it is unscrupulous businesses that use GST as an excuse to increase prices,” Mr Saravana added

Socio Economic Research Centre executive director Lee Heng Guie said that the GST was introduced as part of the bold fiscal tax reforms that have helped to buffer the economy against the volatile oil and gas revenue in recent times.

“Any repealing of the tax reform, GST in particular, must be reviewed in a holistic manner in terms of its implication on the government’s finances and on businesses during the transition period. Tax policy certainty is key to doing business,” he told Malay Mail Online.

Economist Oh Ei Sun also believed that PH was addressing the symptom rather than the problem with its proposal to remove the GST, saying public unhappiness with the tax was rooted in the fear that the collections were being wasted by a profligate government.

“Fundamentally, people think that the need for a tax like GST is due primarily to the rampant corruption and collusion in the country where public money is siphoned off for political purposes or private gains.

“And as long as such things are still being blatantly practised, people feel injustice befalls them when they have to dole out extra money for GST,” observed the adjunct senior fellow at Singapore’s S. Rajaratnam School of International Studies

He said that the GST was also a complex system to the uninitiated, and designed primarily for authorities’ ease in collecting revenue.

“Consequently, many unscrupulous merchants engage in opportunistic price hikes using GST as excuse, and it is difficult to police such unfair business practice,” Mr Oh said.

Malaysian Prime Minister Najib Razak will unveil Budget 2018 on Friday (Oct 27), and experts say he is likely to announce measures to secure key vote banks ahead of a general election due next August. AGENCIES

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