Our opposition leader, DS Anwar Ibrahim has said GST is a regressive tax in which will make poor become poorer and the rich will become richer. He further claimed that the budget is ‘to punish the people’
I wonder whether his assertion is based on his astute knowledge on finance or simply because he wants to be portrayed as the robin hood of Malaysia.
When analysing the tax regime on the people; a regressive tax system means that the poor will pay more and the rich will pay less. It is no doubt in a pure GST regime that it is regressive. But slight modification has been made. More than 200 basic needs have been exempted from the GST. As the Robin Hood of Malaysia, DS Anwar should know these are the items that mostly consumed by lower and middle income group. Clearly, under the revised GST, the poor and middle income groups have been protected.
Secondly, GST is a consumption tax. It is based on your spending. You spend more, you will be taxed more. Low and middle income earners are unlikely to spend more on non-basic items that are not GST-exempted. Even if they did, the volume is not as high as the wealthy people as their purchasing power is limited. It is usually the wealthy people who spend more on luxuries. The opposition leader should have known this since as a rich leader; he also likes to spend more on luxuries such as Omega watch, flying with private jet and numerous oversea trips.
Thirdly, the net increment of the GST to the government’s coffer is only about RM3 billion per year. The rest of the money generated from GST will go to the people and also to offset the loss from reduced personal and company taxes. The cash handouts and all the 1Malaysia initiatives are intended to help the low and middle income groups. Again, these safety nets are meant to protect the low and middle income earners rather than the riches. How could this be regressive then?
Next, the GST is not a regressive tax as it will make more people pay less income tax. It is announced those who earn less than RM4000 now will pay no income tax. This group as far as I know is not the wealthy people.
The opposition under DS Anwar Ibrahim always like to criticise the government for being too reliance on Petronas’ money. They argued government’s revenue should be expanded because sooner or later the oil money will be decreasing. Well, isn’t what exactly the government is doing? To be less dependence on Petronas’ money is a progressive move. To stick with the status quo is actually a regressive act.
So progressive GST is that it will ensure that errant business operators pay their dues. Has DS Anwar ever noticed that all the collection tax under the current SST may not actually end up in the government’s coffers? It is reported Malaysia has large capital outflows which usually happened from transfer pricing where companies transfer costs to various centres around the world to minimize the tax. In other words, government is financially bleeding. Once GST is implemented, it will make life harder for them to do so as they have to be complete record at every stage of transaction.
Those who is evading taxes can also be traced. Isn’t that progressive?
Lastly, GST has an inherent advantage. If a citizen consumes, he is taxed. If he does not and saves, the government can tap the savings for development purposes.
Clearly, GST is not a regressive tax.