GST targets a bigger group but poor hit most, say economists
Trinna Leong, TMI
Putrajaya’s decision to finally introduce the Goods and Services Tax (GST) is a regressive move that would largely hurt poor and debt-ridden Malaysians, say economists.
While they lauded the government’s move to abolish the Sales and Services Tax (SST) for the GST, the economists argued that the consumption tax of 6% effective April 1, 2015 would in fact do more harm than good in the long run.
“This is a regressive tax where the poor would be taxed more than the rich,” said Lim Mah Hui, from the Socio-economic and Environment Research Institute (SERI).
The lower income group would have to fork out a bigger chunk of their wages in terms of percentage compared with the rich, forcing the poor to pay a bigger percentage margin to the government in the form of the GST, he told The Malaysian Insider.
But Prime Minister Datuk Seri Najib Razak said during his Budget 2014 speech yesterday the GST would be a “fair and comprehensive tax system that would benefit all Malaysians”.
“More than 160 countries have already implemented the GST. This clearly demonstrates that GST is proven to be a transparent, effective and fair tax system,” said Najib, who is also the Finance Minister.
“The vast majority of nations in the world would not have implemented GST if it is disadvantageous to the people and the country,” he added.
Deputy Prime Minister Tan Sri Muhyiddin Yassin said after Najib’s budget speech that the lower income group would not be burdened.
“The effect to this group is neutral,” he told a press conference in Parliament.
Economists said that a low income household earning roughly RM1,800 a month would have to spend more of their pay for necessities, a fact which Bank Negara noted in its Outlook and Policy 2013 report on the BR1M.
The report mentioned that based on analysis, “lower income households are more sensitive to income shocks” and that the poor “tend to have lower savings as most of their expenditures are for necessities”.
By pushing forward with the GST, the government would reinforce investor confidence but burden the people in the long run.
With a definite GST rate, the market would receive it positively,” said Edward Lee, regional chief economist at Standard Chartered.
Influential former prime minister Tun Dr Mahathir Mohamad had said earlier this year that the GST should be implemented in stages.
“Everything should be done in stages, slowly, not the full amount at the same time, for the benefit of the people,” he said during the Perdana Leadership Foundation CEO Forum in June.
Institut Rakyat economist Azrul Azwar Ahmad Tajudin said Putrajaya deserved credit for abolishing the SST instead of running the taxes in parallel but added that the government needed to ensure that it can enforce the GST effectively.
