By Stephanie Jacob
On the eve of its implementation many Malaysians remained unconvinced that it is the right thing for Malaysia. Much of it boils down to confidence in the government’s ability to properly administer it.
After years of discussion, debate and often, disagreements; the goods and services tax (GST) will finally come into effect across Malaysia when the clock strikes midnight today. And while yes, it is April Fools’ Day, Malaysians can be assured that this is no prank.
In fact the implementation of the GST in Malaysia has been a long time coming after being repeatedly put off for a slew of reasons for many years. This means that Malaysia is rather late in coming to the GST club, behind seven of our Asean friends and another 153 other nations across the world.
The most popular questions to ask at the moment seems to be if the country is ready for the tax and if we really need it.
Depending on who is replying, the answer will likely differ significantly. Opposition members of Parliament (MP) have remained steadfast in their condemnation and their pleas for a postponement of its implementation.
Meantime government ministers and Parliament members from the ruling coalition have launched a strong defence of the tax and its necessity for the country.
All the while ordinary Malaysians have warily watched the back and forth and worried about whether their businesses are sufficiently prepared and if they will be able to meet their expenses.
Much of the worrying stems from the fact that even one day before the country undergoes a massive change in its tax codes, there is still plenty of confusion over what is to be taxed and what will not be.
The government’s apparent indecision as to what extent it is exempting sectors like healthcare and what sorts of printed material are in fact zero-rated has certainly not helped build the ordinary Malaysian’s confidence.
Many have accepted the lack of clarity as status quo of how things are done in this country. But they might be surprised to know many tax experts experienced the same scenarios in countries like Australia and Singapore as they implemented GST.
Evaluating GST solely as a taxation system immediately highlights some of its strengths.
Firstly, GST is superior to the current sales and services tax (SST), which comes with issues of transfer pricing and value shifting. In comparison, GST provides for better transparency.
Secondly, the GST structure is more effective in preventing tax evasion. Businesses are required to maintain proper documentation in order to claim the GST paid along the supply chain, and therefore will naturally demand documentation from their suppliers. Much of it becomes self policing and has been proven to be effective overseas.
GST will also broaden the tax base which currently only sees 15% of the population paying all income tax collected. It will also help diversify the government’s sources of revenue and help trim the budget deficit.
GST is expected to collect RM23 billion or so in revenue in its first year of implementation. After deducting the RM13.8 billion which will be lost with the abolition of the SST and RM3.8 billion lost from not taxing supply on the zero-rated and exempt lists, the government will see net revenue from GST of about RM5.6 billion.
Furthermore, even in terms of price increases and inflation, experience from other countries show it will likely be a one-time event, and that things should stabilise after the first few months.
But if GST is a more effective tax system, why are Malaysians still so wary? Is it likely that this is because they are not confident that this increase in revenue is going to be effectively administered and used? It is because every year, we read about billions in leakages and no doubt wonder if the increased revenue from GST is going to go down the same drain.
If the government has failed to convince many of the need of GST, it has done an even poorer job of reassuring the public that the increased revenue will not be wasted.
Most of the kinks which come with a major move like shifting from one tax system to the next will work itself out over the coming weeks and months as Malaysians get used to the new system. But the vast majority of tax paying Malaysians are likely to remain unconvinced of any tax systems effectiveness until they start seeing results.
The government can give the people these assurances by ensuring that it keeps a tight rein on its own spending and by reducing wastages and leakages which fill pages in the annual Auditor-General’s report.
GST may in theory be a better taxation system and there is no turning back from its implementation now. Nonetheless, the government still has a job in convincing Malaysians that it can properly administer it. Let’s hope it does not disappoint.
GRRRRR!!!
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