Squeezing a piece of dry cloth drier !

Malaysia faces the prospect of dwindling income from petroleum, since petroleum is a depleting resource and will not be there forever. After suffering the curse of oil, which has resulted in massive misuse of petrol money and wasteful expenditures like massive buildings and bailouts, we are now staring at a future without oil money.

To cover for the loss of income from oil, GST is to be implemented in a year or 2.

In theory , GST is a good tax, and it will be good for the country if income is growing and people’s earning is expanding.

GST taxes on goods consumed and so is a form of consumption tax. It expands the revenue base of the government, and as a form of consumption tax, it discourages wastage and encourage wiser spending by individuals and hence maybe considered a form of ‘green’ tax.

It is a fair and equal tax in principle since everyone is subjected to this tax as long as you buy things or get services. But in reality, it hits the poor more than the rich .

A 4% increase in goods will be nothing to a high income earner and would do little to discourage his spending habits. But a 4 % increase in goods and services consumed to a middle-income person will be felt quite badly, and he or she  has to budget and reduce spending in order to save the same amount of money for a rainy day.

But to a low-income earner already struggling to survive especially in Urban and semi urban areas, a 4 % increase in goods and services will really burden him, and when income is insufficient to cover expenses in order to survive , he has only 2 ways to resort to: either turn to the loan sharks, in which case his life will be even more miserable    OR he may turn to crime..

A GST tax is good when the income level of everyone is rising and when the country is prospering. That way, the pinch felt would still be tolerable.

But in the words of a deputy minister, ‘ Malaysia’s economy has been stagnant for the past decade”, a situation all of us know. So a GST tax at this stage when the economy is not growing will only push a big segment of population below poverty line.

IN fact, Malaysia’s economy has been stagnant since 1997, more than a decade.

A fresh university graduate earns about 1500 a month then. A fresh university graduate  earns about the same amount now, even though the money is much smaller now than 12 years ago, taking inflation into consideration. A cup of coffee costs more . A plate of chicken rice costs more. Income remains stagnant.

On top of that, his expenses has gone up. In 1997, he did not have to worry about handphone bills. Now he has to foot handphone bills since handphone has become a necessity. In 1997, he did not have to pay much for internet services, but now, he has to dig out money for broadband, which is also considered a necessity to a university graduate if he wants to keep up with knowledge. The lifestyle now necessitates certain expenses which were not there 12 years ago, but is considered a necessity now.

Urban dwellers are now like a piece of moist cloth being squeeze for water. The moist cloth is fast becoming dry and still, there is relentless effort to squeeze it drier; any drier, however, the cloth will be full of irreparable holes.

I hope the implementation of GST can be delayed until the country’s economy start really moving again. In the mean time, the government can easily find the 1 billion revenue (which GST is supposed to raise) by more careful and prudent spending and tackle corruption at the top levels.

(This is the 1000th post of this blog — nothing to shout about but there is definitely some satisfaction in my inner self for being able to sustain and persevere in spite of all the shortcomings , busy schedules and pressures).

23 Comments (+add yours?)

  1. clearwater
    Dec 16, 2009 @ 13:23:02

    I am all ears and eyes with respect to how GST will be implemented. How will low income earners’ GST burden be offset, how will the numerous small cash businesses be roped into the system, will there be a inflation spike initially……I really hope they won’t foul up on something so important and pervasive to the average citizen.

    As for raising additional taxes, perhaps the authorities should re-introduce inheritance, estate and gift taxes aimed at the truly rich. This was dropped during Daim’s tenure as Finance Minister, seemingly more to benefit himself and cronies, than for the average Malaysian. Let the wealthy contribute in life as in death to a more equitable society.

    Like

  2. el teh
    Dec 16, 2009 @ 13:31:24

    If we can stop the bleeding of the country’s money, then there will not be a need for the GST! Tackle corruption seriously!!!

    Like

  3. KB
    Dec 16, 2009 @ 14:20:50

    Don’t forget HIGH CAR PRICES, TOLL, HIGHER ELECTRICITY TARIFF and ASTRO. The urban middle class is being squeezed dry.

    Like

  4. keith
    Dec 16, 2009 @ 14:53:36

    stop corruption? noooo…. introduce tax on corruption.

    Like

  5. klm
    Dec 16, 2009 @ 15:19:52

    I dont pay income tax.🙂

    Now I have to fork out money for GST. And With GST, the price of everything will go up. With high price of cars and houses and children education, Malaysia have high cost of living. Who want to come back?

    Like

  6. klm
    Dec 16, 2009 @ 15:22:19

    Oh! HCG quit Gerakan. I hope this will stir the moribund Gerakan members to do something, anything.

    Like

  7. AcHoo!
    Dec 16, 2009 @ 17:29:48

    The government only knows how to tax and nothing else. But where will this extra “income” go to? Yes, a bonanza for the cronies!
    On one TV talk programme an UMNO politician said that with GST the income tax rate will go down and there will be more FDI’s.
    Like magic it seems- without thinking about our human resources and our infrastructure for doing business.

    Like

  8. spot red
    Dec 16, 2009 @ 20:39:14

    Congrat dr. Hsu for this excellant 1000th posting…
    Keep on posting, doc. for I will hit this Blog everyday…

    Like

  9. KB
    Dec 17, 2009 @ 11:47:50

    Poor Huan. PCM isn’t going anywhere unless it can join BN which is unlikely. It is the vehicle he will ride off into the sunset. Huan’s only viable alternative to stay in active politics is to join PKR but too bad his BN entrenched ideology doesn’t allow him to do that. Goodbye Huan!

    Like

  10. A Single Vote
    Dec 17, 2009 @ 12:55:51

    Dr Hsu,

    Enjoy this 1000 posts as a personal achievement but more than that, please feel especially proud knowing that you have tickled so many minds with your thought provoking postings.

    Congratulations.

    Like

  11. ahoo
    Dec 17, 2009 @ 13:01:50

    After the year end holidays Malaysians will wake up to many more crisis. The govt of the day is so poor now that in their planning they will plan on how to tax the general people more. With GST, likely tariff hike from Tenaga, 5% property gain tax, inmaterial whether it is your OLD house that you are selling, likely petrol hike, sugar no more subsidy etc. we are heading for many nightmares.

    With another financial tsunami coming in the next quarter of 2010, we really need to be ever watchful otherwise we will be drown without even hitting the water !

    Like

  12. CYC
    Dec 17, 2009 @ 15:41:06

    It is not matter of whether we high or low income society to justify the implementation of GST. The ultimate principle of tax system must base on equitable basis. When u are tax on the same old income tax rate with an additional 4% GST, your burden increase by the said 4%. There is definitely a need to restructure the income tax rate concurrent withe implementation of GST. Otherwise, inflationary pressure will hit the man on street hard especially the low income group.

    Another point is why is our govt merely implement GST as measure to increase revenue but no effort to boost revenue by plugging the leakages within the administration framework which easily reach the quantum in billions RM. U don’t need to pull down your pants to fart.

    Thirdly, GST will only burden consumer and not trader or manufacturer in monetary sense except probably more paper work cost which usually will be offset by passing the extra cost to consumer.

    Fourthy, there is no guarantee that 4% will remain in the subsequent years of implementation. So, what the FM2 said of saving under the new system vs present Sales Tax of 10% is only a temporary measure to please voters and remain questionable.

    Finally, it is a silly argument by the govt to justify GST as step towards high income society.

    Having said all these, I am not against GST but the overall tax structure must be balance and equitable. Tax expert out there should make your view heard so that the wealth fare of the public are protected.

    Like

  13. Nick
    Dec 17, 2009 @ 15:45:54

    Dr, Hsu, you are a genius. Your blog is not easy to write what more to face so many tough critics. But not only have you reach a milestone but you have certainly managed to remain “fresh” and “interesting”. I for one have remained one of your many ardent fans. Keep up your good writings.

    GST is a proven excellent money-gathering or revenue enhancing tax for the government. I support it. GST or VAT is always a fairer consumption tax solong as the government of teh day knows how to keep it to a minimum. Corporates will soon learn that it is not easy to avoid this tax. Whichever way, one tries to ‘escape’, the tax somehow will leave the taxpayer “short”, that is, the Company will choose to comply than to avoid. I have enough experience with this tax working in 3 countries abroad where it is working perfectly. I do not support the opposition call to do away with this tax. The intro 4% is acceptable. Saya sokong!

    Like

  14. romerz
    Dec 18, 2009 @ 04:15:16

    Nick,

    Sorry for saying this but I think you have missed the point. You said that “solong as the government of teh day knows how to keep it at a minimum”, you would support GST.

    The problem is the government of the day need not resort to GST yet (though it will come eventually), if it was prudent in managing our finances.

    Simply put, do you think a government suffering the setbacks it did will even consider GST which will not go down well with many voters if the country is not broke?

    The fact is Malaysia is broke and borrowing heavily. From us, from the rest of the world with the ASM and all the bonds issued or to be issued!

    You sound like an intelligent guy so please do not be too smug with this coming GST which can only hurt the poor!

    The fact is our government is trying to spend its way out of trouble whilst the country is going broke!

    Some caused by the lopsided contracts signed with the IPPs and highway concessions but to name a few. Not to mention our government using precious resources for unproductive expenses but to keep the status quo of their power.

    All ordinary Malaysians and I’m sure Dr Hsu as well are asking why do we have to resort to GST which can only burden the poor, when we have not yet exhausted other options which will reduce corruption, leakages and plain stupidity of the egoistic racial kind?

    Where is the political will to do good for the country when it is the antithesis of UMNO/BN power?

    Sorry Nick, much as I know that GST will eventually come one day, it must NEVER come so long as UMNO/BN is still in power.

    You and I may make do with less because our budgets don’t allow it but tell it to the poor how fair a system it is when they are starving and they see UMNO/BN big shots riding around in their limos and what not!

    This is a recipe for chaos!!!

    Before we talk of putting in new systems, we have to put right old unfair systems first!

    Like

  15. Nick
    Dec 18, 2009 @ 11:41:05

    Romerz, I am on your side when it comes to seeing the blatant corruption taking place by the present goons. But can we expect all injustices to be fixed first? Surely not. It has already gone too far, no one expects MACC to do anything when the crimes involved the highest in the land. That’s why, my votes will never go to BN. Having said that, do we have the right or might to stop any new systems being introduced? I will support if new systems enhances our country’s systems and wealth. The fiscal authorities must be allowed to introduce different forms of taxes and allowing them the flexibility in future to tweak so as to arrive at the desired results. Whether the poor will suffer more is a red herring. The ‘poor’ will always suffer and that has nothing to do with taxes, more to do with profiteering and monopolistic economies, etc. Yes, GST is a good tax but it is only one form of indirect taxation, albeit the most far-reaching. If the opposition takes over post GE13, than it gives them more leeway to manage their revenue sources. You can’t expect the present regime to put right all the injustices, it is already too late. I am also a taxpayer, so my expectations are that in coming years, income tax rate should go down with the GST in place. Let’s take our highways. Many years ago when it was built, I remembered the DAP launching many strikes and strongly opposing it, but look at the benefit now, no one will dispute that our national highways are efficient. As to the toll rates, that is another argument, but it should not detract from the fact that highways are good for our Nation’s development.

    Like

  16. LCW
    Dec 20, 2009 @ 01:51:59

    Dr, i respect you as a person, your profession & your stand but using the excuse change from within is really, really lame…pardon me.

    We ordinary rakyat need more leader or inspirer like you, Zaid, Anwar, LGE, Nizar, Tony Pua to change…together, all of us for us, our children and our children’s children.

    If you continue to harping from within, I think your stand of principle does not merit our respect anymore even I still respect you as a person.

    I have changed, 2008 was my 1st vote & I have trustfully given to anybody but BN.

    Thank you.

    Like

  17. Dr Hsu
    Dec 20, 2009 @ 15:08:18

    I have stopped believing ‘change from within’ since 2006 when I advocated Gerakan as a third force.Then I have started asking, as an ordianry member, the top leaders to pull Gerakan out of BN.308 ha ve proven me correct, and many members have acknowledged that.. I am still advocating that in party meetings , so much so every Gerakan member knows my stand.

    More and more people are saying that they re starting to see my point. Rome is not built in a day, so maybe I need a bit more time to convince more members to speak out..

    The more extreme UMNO is towards Gerakan, the better is to my cause.. Ahmad Ismail lifting of suspension has made even more saing that we should have left last year. When these waves become a current, even the top cannot ignore..

    Like

  18. A true Malaysian
    Dec 20, 2009 @ 19:11:47

    Undeniably GST is a good form of tax but it is true for developed economies. Malaysia is still far to classify in such category as poverty, education and civic mindedness are still major concerns.

    A GST system requires efficient and reliable “trail” recording to ensure transparency and fair play of the system. Take for example, a manufacturing concern bought materials for further processing which are subject to GST is allowed to claim back the GST paid (i.e. when purchasing) from the government. This is the usual form of GST practice in developed economies like Singapore. I am not sure Malaysia’s brand of GST is the same kind or not, since in Malaysia, everything also “BOLEH”. Also, logically, Income Tax should be lower if GST is imposed. How is GST going to be operated is still blur and it is far more complex than what we think or perceive, bear in mind, many businesses buy and sell their goods and products in “Credit Term”, not “Cash”. What if a business gone bust or facing difficulties in cash flow? Just some points for commentators here to ponder.

    But, if Umno still insisting of going ahead with GST (of which I think is “suicidal” to them), then maybe they can think of mechanism for the poor and retired people to claim back money they paid while consuming goods and services.

    It is still not the time for Umno to have GST, if they want to accept my view.

    Like

  19. Nick
    Dec 21, 2009 @ 08:17:51

    For a manufacturing concern, the main worries is “managing your cash-flow”. All imports will be subjected to the 4% ‘input GST’ up-front collection by customs at the point of entry (ports, airports, etc). Only after you manufacture your goods and sell it, will you have charged the ‘Output GST’. You can then set off the ‘Output V Input’ in your monthly returns. But then, you may have sold your goods on ‘CREDIT TERMS’. Before you have even collected your money from the customers, you have to account for it to the taxman due to the “Taxpoint Invoice Date”. What if the SALE turns bad or doubtful? The Output Tax would have been accounted for and paid over to the Government. Yes GST is brilliant but there are drawbacks in practice for the tax-payer. The ultimate winner is always the Govt in this system. The taxpayer is just an “colllecting agent” helping to collect this “pass through tax”. There is no added costs to the manufacturer if everything works out well. The ‘added costs’ or ‘hidden costs’ is the interest on funding or on the cash-flow paid up-front. GST gets interesting and complicated when you have more items which are “zero-rated” or “exempt products”. Our GST is exactly the same as the one proven in most economies including Singapore. GST has benefits, it will create more jobs for clerks and accountants and tax practitioners. As I have said, it is high time Malaysia have this, why are we diddlling and dallying?

    Like

  20. Dr Hsu
    Dec 21, 2009 @ 11:20:01

    Nick
    Thanks for the well written explanation of GST mechanism.

    GST is a good tax. As I have mentioned, it can be seen even as a form of green tax because the more you consume, the more you pay. So in theory it discourages consumption.

    I am only aginst the implementation at this stage when the economy is uncertain. By 2011, Malaysia’s economy will not be back to where it was at the beginning of 2008. Maybe when the economy istarts to grow by 5-6% steadily, then introduce the tax, and at the same time, cut income tax rate…

    Certain essential items such as basic food stuff, rice, cooking oils, medical services, should be exempted from this tax in order not to overburden the poorer section of the people.

    Before that, perhaps, government should act to plug the loopholes and leakages…especially when economy is not expanding.

    Like

  21. A true Malaysian
    Dec 21, 2009 @ 13:09:08

    Imagine the chaotic situation if GST is on without loopholes and leakages plugged…..

    Malaysia is not ready to implement GST yet, be realistic, Umno. As I said, it is a suicidal act for you to go ahead. It is better to have yourselves “plugged” before GST. That’s more realistic.

    Thanks Nick for your well written explanation.

    Like

  22. Dr Hsu
    Dec 22, 2009 @ 13:32:11

    Nick,

    I was told that houses will be exempted from GST.

    SO for the developers, they will have to foot the input GST for raw materials and they cannot charge output GST since completed houses are exempted from GST. So they cannot claim credit for the input GST.

    If I am a developer, and my cost for raw materials and services (such as architecture, engineering and accounting) have gone up, because of the imposition of gst on the raw materials and services,, my over cost for building will have gone up.

    I will have no choice but to pass it to my customers, the house buyers, not in the form of output GST, but rather through an increase in selling price.

    So, even when houses are not subjected to GST, house buyers will have to pay for a higher price for houses.

    Is my understanding correct? I hope you can enlighten us on this part, where there is only input GST and no output GST.

    Thanks in advance. ( anyone else is also welcome to give his view on this)

    Like

  23. Nick
    Dec 23, 2009 @ 12:24:07

    Dr. Hsu, yes you are right. The developer will definitely have to pay for all his GST raw materials (roofing, bricks, cement, steel pipes, nuts, bolts, nails, tooling equipments, etc). If house is “exempt”, then the developer cannot impose a Output GST and as you surmised, he will have to recover his margins from increased selling price. The consumer/house buyer is the final payer.

    Like

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