GST was not a bad idea. It was a “bad timing”.

It looks like Suadara Lim Guan Eng is ramping up his work, and try to push the SST implementation agenda as soon as possible. Quoting him:

“We want to replace the GST with SST as soon as possible. It will definitely be this year but let us work it out before we give a date.”

I have this feeling that I will be under a lot of heat for saying that GST was not a bad idea. Quite frankly, I kinda like the GST mechanism (ok, let’s admit it, we all hate paying taxes).

Everytime the “Council of Eminent Persons” and the new administration say that they are committed to switch back from GST to SST, this is my initial reaction:

giphy

Here is my view on taxation. In my opinion, we (I mean the government) should tax the people based on its efficiency, not productivity. So my theory is, if we draw the tax spectrum, it should look something like this:

Screen Shot 2018-05-21 at 6.30.57 PM

The argument is, if you tax on productivity (corporate income tax, personal income tax), too high, you will discourage companies/person to innovate/work harder to generate more income.

Taxing efficiency means, your tax contributes back to the economy. For example, the land value tax encourages an efficient housing development. (You can YouTube that and understand it yourself).

For consumption tax (like the GST), I would put it in the middle, since it depends on how high the tax rate is implemented.

So, why I like the GST?

Well the idea of GST is, first, to reduce our reliance on oil & gas. Going back to earlier estimates, the current (and the previous) government assumes that oil price this year to be at $52 per barrel, and expected revenue to be RM11bn. Now that oil price has been hovering around at $70-80 per barrel this year, my calculation estimate that we might collect an additional RM5bn.

Second, is to make sure everyone is paying its fair share for the economy. In Malaysia, our working age population is around 21 million of overall 31 million population. And within that 21 million, only 12.5 million are in the formal sector. This means only 40% of the whole population are paying their taxes.

Bare in mind that if you are within those 12.5 million formal workers, and you make RM5,000 and below, you don’t have to pay any tax. On a side note, do remember that basic food items were zero-rated, including onions, rice, few types of sugar, and flour. You can check the list here.

So, if GST was not a bad idea? Then what was wrong with it?

Two words – Bad timing

Malaysia Inflation _ USDMYR

The graph above shows our Ringgit vs the USD. When the implementation of GST took place back in Apr-2015, our Ringgit went up from RM3.67/dollar, to RM4.29/dollar in the end of the year.

This means our imported goods became more expensive.

Malaysia Inflation _ World Food Price

Between late 2016 to early 2017, world food inflation also increased by double digit, averaging at 10.3%

So, where do we go from here?

I propose three solutions:

  1. Keep the GST. Even cutting down the current GST rate from 6% to 3% would be ideal, and the government will still make around RM20bn to RM25bn per year.
  2. Be transparent. I admit, the problem with the GST right now is lack of transparency and there were too many leakages.
  3. Read point number 1. Because we’re going to need it anyway in the future. Our neighbor down South, Singapore, is a perfect example. As their country is ageing and they need more revenue to fund its healthcare and infrastructure, I could understand why they have decided to increase GST up to 9% in 2 years time.
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