Government in a bind over GST implementation

by Syarina Hyzah Zakaria
Edge, 19 October 2011
KUALA LUMPUR: The government has again delayed the implementation of the goods and services tax (GST) as it wants to have greater acceptability and enough time to educate the people on what the GST really is, said Veerinderjit Singh, managing director of independent tax advisory firm Taxand Malaysia Sdn Bhd. In a seminar on Budget 2012 yesterday, Veerinderjit said the timing of the GST has always been a crucial point but in light of the global economic uncertainties and high prices of commodities, the acceptability among the rakyat becomes a sensitive issue. “Perhaps it (the GST) should have come earlier (before the current economic uncertainties). We may have missed the boat in a sense,” he added. Veerinderjit said once a law is passed on the implementation of the GST, there would be a 12- to 18-month period to allow businesses to change and make the necessary adaptations to the new tax system. He stressed the importance of the preparation period as it provides a window to further educate the public. In the past few years, the business sector had already been made aware of what the GST entails; the main issue now lies in educating the lower-income group which Veerinderjit sees is more resistant of the GST. “The government is probably having a difficult time grappling with the issue largely because of the large number of the low-income group,” said Kang Beng Hoe, executive director of Taxand Malaysia. He said only two million of the 14 million workforce in Malaysia pay taxes. At present, due to the structure of the economy, there are a number of people in the labour force who are falling out of the tax net as their income levels are too low to be taxed, Veerinderjit said. The mentality is “if I don’t pay income tax, then when I pay the GST later, I’m now paying a new tax”, he said. He said the assistance given to help the lower-income group had resulted in a subsidy mentality where the tendency is to depend on the government. The government has made it its priority to change this mindset, he added. “Introducing something which is considered new by the lower-income group is an issue,” he said. Another issue is the large subsidies it has to pay to support the lower-income group. Kang said the government has clearly stated that over time, they want to claw back the subsidies but the question is, which should come first? “So you have two things pushing in opposite directions, should you be clawing back subsidies first or should you be implementing the GST?” he said. The government has to find a way to reduce the deficit, achieve a balanced budget, as well as grapple with the issue of how to slowly take away subsidies and introduce the broad-based GST, Kang said. Veerinderjit and Kang both cited lessons from the success Singapore has had in implementing the GST. The initial GST rate was set at 3% and is currently 7%. Singapore’s corporate tax was previously around 25% but after the implementation of the GST, it was subsequently brought down to 18%. They added that Singapore is at present classified as a tax haven due to their tax structure, and this proved that Malaysia too could have successful implementation of the GST.