Jeyakumar Devaraj writes to the Second Finance Minister asking him to explain why they think the impact of GST would only be minimal when many traders are likely to take the opportunity to hike prices.
Last month, a senior staff from the Ministry of Finance came out with the statement that the GST would only add RM46.94 to the expenses of a family which has an expenditure of RM2000 per month and not RM120 as one might expect (6% x RM2000).
This was quoted in page 6 of Starbiz, 16 September 2014. According to Datuk Siti Halimah Ismail, the undersecretary for the Tax Division of the Ministry of Finance, the implementation of the GST would only increase the expenditure of this family by 2.35 per cent.
Frankly, I find this quite intriguing. Would it be possible for the Ministry to share the calculation underlying this statement by putting it up on your website so that the public can judge whether or not it is true.
I believe that to make a forecast such as this, one would need to make a list of goods and services that a family with a monthly expenditure of RM2000 would be purchasing in a month. Then one would have to divide these goods and services into six categories as shown in the table below. Then one would have to calculate the increase in the costs of each of these categories.
|Goods and services that have sales tax now||Goods and services that have no sales tax currently|
|Zero rated goods|
|GST Exempt Goods|
|Goods and services that will be charged 6% GST|
Did you assume that all goods that were previously charged sales tax of 10 per cent would be 4 per cent cheaper once GST is implemented? In other words, you are expecting that all the outlets all over Malaysia will dutifully lower prices for these items because the Sales Tax is abolished. Our experience is that prices are “sticky” downwards: retailers are usually reluctant to lower prices.
Is the Ministry assuming that all goods that are zero-rated will have no change in their prices at all? Is this a valid assumption? Let’s take the case of vegetables, which are zero-rated. But the farmer’s production costs will go up – fertilisers, pesticides, diesel for machinery and transport, etc will attract GST at 6 per cent. For zero-rated items, the producer can claim back input tax from Customs.
But how many of our vegetable farmers do you think, Datuk Seri Minister, would be registered with the Customs? For you can only claim back ‘input tax’ if you are registered with Customs. If the vegetable farmer cannot claim back the increase in his costs for the GST paid on his inputs, would he not pass it on to his customers in the form of a price increase?
Did you calculate the price increase of all goods exempted from GST to the second decimal place? As you know, GST-exempt goods will not be charged GST at the point of sale to the customer. But unlike the ‘zero-rated” items, the retailer will not be allowed to claim back the GST he paid when buying these items from the supplier, so the retailer will pass the GST that he paid to the customer in the form of a higher price.
Do you really believe that the retail sellers will so scrupulous as to calculate the exact amount of GST they actually paid? Won’t there be cases where prices are hiked up more than 6 per cent using GST paid (when purchasing from the wholesaler) as an excuse? Does the Customs have the capacity to monitor the situation across the country?
May I refer you to page 14, The Star. An article entitled “Prices of sundry goods shoot up overnight after fuel hike” begins thus: “Retails outlets in Sabah have started increasing the prices of sundry goods by 70 sen to RM1.40, just hours after the latest fuel price hike.”
This is the normal behavior of businessmen. They will use any opportunity to hike up prices if they feel they can get away with it. Is your Ministry in a position to monitor and prevent all of this. If not, then shouldn’t you review the assumptions made in your calculation of the impact of the GST on the budget of lower-income families?
I can appreciate the argument that the GST will lead to more comprehensive reporting of actual earnings in the private sector, and that tax revenues will go up. But I think it is dishonest to pretend to the Malaysian public that the impact on them will be negligible. If we want to build a democratic culture in Malaysia, it is important that we speak the truth and allow open discussion on important policy decisions based on facts.
I am writing to you, as the Finance Minister I must be busy with various responsibilities. I hope you, as Finance Minister II, will instruct your staff to make their calculations public so that everyone can see how you arrived at that 2.35 per cent figure.