GST a way to fund the poor, says Idris Jala

By Lee Wei Lian and Boo Su-Lyn

Malaysian Insider, June 24, 2011

KUALA LUMPUR, June 24 — Putrajaya believes the Goods and Services Tax (GST) could help widen the government’s tax base and provide funds for the poor now reeling from a global rise in commodity prices.

Economists also do not foresee any issues with implementing the GST despite the country’s low tax base which appears to suggest chronic tax evasion. But the government has shied away from pushing the tax due to outrage from most Malaysians, where only one million pay income tax.
Minister in the Prime Minister’s

Department Datuk Seri Idris Jala (picture) said yesterday Malaysians have to accept that “we have to move away as only then the government will have sufficient money to go around for everyone, especially the poor.”

“To widen our tax base, we need to get rid of sales and services tax and replace it with GST. Currently, only one million of the 28 million Malaysians pay tax.

“With the GST in place, all 28 million Malaysians will pay a little bit which then allows us to reduce corporate tax and income tax and that’s how we can find money enough for poor people,” Idris said at a forum.

He said this was the reason 143 countries were now enforcing the GST.

Critics however say Malaysia’s natural resources are enough to fund programmes for the poor but economic leakages and an extravagant government have frittered away most of the money.

Only about 10 per cent of Malaysians currently pay income tax but economists say that GST will be harder to evade and will help improve tax collection efficiency.

Detractors say the government must be more efficient in collecting tax, citing the number of mansions and high-ends cars seen in the country despite the low tax base.

Kenanga Investment Bank economist Wan Suhaimi Wan Saidi said the GST will improve the efficiency of tax collection in the long run.

“There will be initial hiccups,” he told The Malaysian Insider.

“It’s a necessary evil now so that they’ll be more efficient in collecting taxes,” he said.

Wan Suhaimi also said he did not foresee a problem with the GST in the cities, but expected those in the rural areas to take time to adjust to it.

Putrajaya has assured the public there will be some 3,000 exceptions or zero-rated products when the GST is implemented but fears remain that people will have to pay more for basic products.

The country’s inflation rate hit a two-year high of 3.3 per cent last month and consumers are bracing for more inflation as the government has cut subsidies for electricity and fuel for vehicles, especially in the transportation sector.

RAM Holdings chief economist Dr Yeah Kim Leng similarly did not expect major problems with the implementation of the GST.

“The GST is long overdue,” he said.

“We’ve been given sufficient time, 1½ years, to prepare for implementation. So they should be ready by now,” he added.

The economist said the implementation of the GST was similar to the current sales and service tax collection.

“It is needed to broaden the government’s tax base or revenue and it is basically seen as a more efficient tax system,” said Yeah.

Kit Wei Zheng, Citibank economist for Malaysia and Singapore, said if GST was properly implemented, it will be harder to evade than income tax.

“GST will likely broaden the country’s tax base,” he said.