Why the GST is not necessary

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People forget how unpopular the GST was

Is the GST inevitable? Anil Netto proposes alternative measures the government could take instead of resorting to the much-opposed consumption tax.

At a recent talk on the GST, I asked those present what they thought “GST” stood for. Most of those present responded, “Goods and Services Tax”.

Then, I showed them a cartoon by Zunar which described GST as “Golfing, Shopping, Travelling”! They got the joke and laughed knowingly.

Zunar-cartoon-GST-Golfing-shopping-and-travelling

Humour aside, the concern over the impending Goods and Services Tax was evident in the faces of those who attended the talk at the Church of the Risen Christ in Air Itam, Penang.

The first thing to note is that the GST is a regressive tax. It is a significant move away from the somewhat progressive tax system that we used to have.

Why is it regressive? It shifts the burden of tax away from the rich to everyone, including the vast majority who are struggling to make ends meet. And instead of a consumption tax imposed on only selected items like in the past, this time only a few items are exempted.

True, the GST is a tax on consumption and the more you spend, the more you have to pay, so it does improve collection from all, including the rich.

But a tax on spending disproportionally affects the poor the most. They have to pay six per cent on their spending — something they can ill afford.

The government argues that GST is effective, efficient, transparent, business friendly and capable of generating a more stable source of revenue. “In the long run, a more effective and efficient tax system will help in reducing the fiscal deficit in Malaysia.”

But we have to ask, how did we arrive at persistent fiscal deficits in the first place?

Basically, we suffered from the curse of the oil-rich nations, the Resource Curse. The government relied heavily on oil revenue, and that made us less creative and productive in our nation, and less prudent in our spending. Because 90 per cent of the population were not rich enough to pay income tax, we didn’t care how the government used its tax revenue. We grew complacent.

Corruption flourished and spread like wildfire. The original rainforests of Sarawak were all but wiped out, fabulously enriching a small group. Our oil resources were rapidly extracted. Government entitites like 1MDB grew unaccountable to the general public. Petronas is not answerable to Parliament, only to the Prime Minister.

So, before we think of new taxes, we need to plug the “leakages”, eliminate corruption and improve accountability; otherwise, a huge chunk of any new taxes collected could also disappear into a black hole.

The MACC needs to be revamped to make it truly independent. At the moment, it is just catching the ikan bilis and not the great sharks.

We need to examine funds being siphoned out of the country and ferreted into secret bank accounts abroad. These funds should be brought back to the country. Politicians who have assumed wealth beyond their means must have their assets — and those of their family members — independently audited.

We need to turn the tide in our income and corporate tax system so that, instead of being regressive, it is made progressive once again. In recent years, the corporate tax rates and the income tax rates for the upper bands have been steadily reduced. Thus, the wealthy — who often tend to be the powerful and influential — have been paying less tax than they should. Then there are the array of corporate tax incentives awarded.

Economist Thomas Piketty proposed a global wealth tax for the super rich, to help narrow the gap between the extremely wealthy and the ordinary people. He argues that the government should find more aggressive ways to tax Big Capital.

Of course, the global business and financial media have come up with all kinds of reasons why such a tax is not a good idea. They would, wouldn’t they.

While it may take a while for the world to come around to the idea of a global wealth tax, there is no reason why we cannot implement something along those lines here in Malaysia. For a start, we could explore ways to tax those who have made large amounts of profit from property, commodity and property speculation and monopolistic businesses controlled by cronies and the family members of top politicians.

Many of these firms have earned huge profits from their speculation, harming the rest of the population via higher property, and even food prices. The Capital Gains Tax on sales and purchases of property needs to be strengthened further to plug the loopholes.

A more progressive tax regime needs to be put in place so that those earning super profits — often from the exploitation and depletion of natural resources, environmental degradation and cheap labour — are required to pay higher taxes.

We should also bring back an Inheritance Tax or Estate Duty so that the stupendous wealth that is transferred from one generation to the next is similarly taxed. Wealth inherited tends to make the next generation lazy and unproductive. We had Estate Duty of only two per cent at one time, but even this was abolished in 1991.

The UK has an Inheritance Tax. Note that this does not mean taking away all inheritances. In fact, 94 per cent of UK households are not affected: if your estate upon death is worth less than 325,000 pounds, it incurs zero inheritance tax. But an inheritance tax of 40 per cent is imposed on anything above that threshold. Why don’t we have something like that here? Because it affects the rich and the powerful?

We should also seriously consider the Tobin Tax, suggested by economist James Tobin. This could be in the form of a forex currency transaction tax or more generally, a financial transaction tax. We are not talking about a huge tax rate here. Tobin himself suggested 0.5 per cent, while others have proposed anything between 0.1-1.0 per cent. Some have even suggested a tiny tax like 0.005 per cent. In short, it would be a miniscule tax rate.

But even so, the big banks and financial institutions are likely to resist such a move. They would, wouldn’t they. For, after all, they are rolling in hundreds of millions, if not billions of ringgit, in profits. They are not laughing all the way to the banks. They OWN the banks, and they are laughing INSIDE the banks.

Much of these bank and finance company profits are earned from the interest paid by so many indebted households who are in misery. These financial institutions could also be earning interest from corporate loans extended to firms involved in environmentally damaging projects such as big dams and polluting refineries. Many of them are also earning huge profits from speculative financial instruments. Could we at least review the taxes paid by these big banks?

If we implement even some of these measures, we would not need the GST. There is still time for the government to reconsider and halt the implementation of the GST before it burdens so many households in this resource-rich land of ours.

Anil Netto is a Fellow of the Institute of Chartered Accountants in England and Wales.

Source: heraldmalaysia.com

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