3 REASONS WHY INCOME TAX IS BETTER THAN GST PDF Print E-mail
Wednesday, 19 March 2014

Goods and Services Tax (GST) is the BEST tool in government’s hand to increase revenue so they can spend more on people’s need. I beg to differ to this idea and these are the 3 reasons why we should continue with income tax that is far better and practical for Malaysia and Malaysians:

 

1.       http://precisepg.com/wp-content/uploads/2013/12/gst-for-the-masses_1_540_875_100.jpgIncome tax is a Progressive tax.

Basic principle of income tax is where people with more income pay a higher percentage of that income in tax than to those with less income. Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher income inequality as the tax structure increases equality, Progressive taxation has also been positively associated with the subjective well-being of nations and citizen's satisfaction with public goods, such as education and transportation.

 

In simple words, it is a fair proportion tax system. In Malaysian context, taxable individuals are 20% of the population whom 10% of the richest owns 38.4% of the country’s wealth.  Remaining majority is not tax eligible whom mainly our workforce. GST on other hand is a regressive tax and will affect almost 80% of the population.  The info graphic above shows crystal clear how unfair GST is to the poor.  

 

According Forbes Asia, the list of billionaires in Malaysia for 2014 has increased to 18 with 4 newcomers proving business are making fat profits. The government should be able to get higher revenue through corporate tax as Malaysia’s rich resources are lucrative. Instead lowering the corporate tax, government should increase the rate for business’s capital gain. 

 

Based on World Ultra Wealth Report 2013, Malaysia indicated increase in multi-millionaires in 2013 from 780 in 2012 to 840. Hence the government’s revenue should have increased too but how it’s spend will be another issue altogether.

 

Nevertheless, Malaysia also ranks highest in income disparity gap in Southeast Asia with inequality gap measuring 46.2 which is worse than Philippines, Thailand and Indonesia. Implementing regressive tax such as GST will stretch the gap wider making our poor poorer.

 

 

 

2.  No Additional Administrative Cost

A heightened enforcement by the Inland Revenue Board of Malaysia (LHDN) is all needed to ensure the government able to maximise revenue collection through income tax.

The chart is from the LHDN’s 2011 annual report, stating the income generated through various taxes. The largest contribution is 50.25%, income generated from the company taxes amounting RM55.08 billion, followed by Petroleum RM27.75 billion and Individual tax RM19.38 billion.

 

Year 2011’s total tax revenue RM185.419 billion contributed 59.11% income to the Federal government surpassed the target set and Prime Minister Datuk Seri Najib Tun Razak had said that LHDN’s success in achieving a 27 per cent increase in the tax collections for 2011 compared with 2010 was an extraordinary achievement.

 

This achievement supported by several strategies including the Key Performance Index (KPI) in 10 tax activities which covered revenue collection, uncollected account, efficiency in collection costs, external audit, repayments, investigations and LHDN’s electronic services as well as training for officers and staff, among others. There had been regular monitoring as well by the KPI Monitoring Committee to ensure that the targets were met.

All in all, efficiency in LHDN will enable the government to get the increase in revenue without GST in place.

 

According Federation of Malaysian Manufacturers (FMM), GST will not only add to the tax burden but will also lead to a manifold increase in the volume of administrative work in particular the Small and Medium Enterprises (SME) hence GST implementation should be deferred.

 

Instance Australia found small businesses of GST compliances spends 58% of their total internal compliance which is expensive compared to South Africa (38%), UK (41%) and Canada (41%). Malaysia’s SME will suffer worse once GST introduced as we are still a developing country compared to Australia or UK.

 

In the other hand, additional cost will incur for the government to implement the new system with software, training, administrative work. All these additional cost and work is unnecessary should we follow suggestion by FMM which is, Malaysia may able to recover its deficit budget should it reduces wastages or leakages in government expenditure, ensures better value for every ringgit spent and improve efficiency in utilising public funds prior the introduction of GST.  I totally agree and the government should too.

 

3.  No chain effects

Strengthened income tax system will further ensure government’s stable revenue generated without any chain effects unlike GST.

 

In January 2014, Malaysian annual inflation rate accelerated to 3.4%, the highest rate since October 2011 due to higher food, transport and electricity prices. Based on Department of Statistic Malaysia;

Notable price increases were recorded for transport (+ 5.3 percent); food and non-alcoholic beverages (+ 4.2 percent) and housing, water, electricity, gas and other fuels (+ 3.2 percent). Other increases were observed for alcoholic beverages and tobacco (+ 14.1 percent); restaurants and hotels (+ 4.2 percent); education (+ 2.6 percent); health (+ 2.1 percent); furnishings, household equipment and routine maintenance and recreation services and culture (+1.6 percent each).

Therefore implementation of GST would create chain effects as it increases production cost, administrative cost for the manufacturers/wholesaler/retailer that will be pushed down to consumers. Prices will raise resulting lower purchasing power added with stagnant wage floor. Government’s latest effort to implement minimum wage Act is still in initial phase thus will not able to protect the lower income group from inflation caused by GST.

 

In a nutshell, the government should maintain and further enforce the income tax system as the way forward. NO TO GST !

 

 

By, Madhavi S
JERIT Secretariat
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