Sakmongkol AK47
The Malaysian Insider
May 22, 2011

MAY 22 — A long time ago, I wrote about the government’s plan to implement goods and services tax (GST). I am not going to bother looking at what I wrote. Maybe what I wrote then did not make sense at all.

But to me, the plan to implement the GST will be another nail in the coffin for the Barisan Nasional government. In almost all cases where the GST was introduced, it has raised a lot of discontent. Governments have fallen because of the GST and finance ministers have resigned.

Remember this: Governments have fallen, finance ministers have quit.

I hope, the government’s tax package is not an attempt to trick workers into thinking that they will be better off after the proposed tax cuts. I also hope it will not trick people on government benefits that they will be better off after the so-called “compensation”, despite the introduction of a GST.

Consider this. Our tax base is perhaps only 15 per cent, i.e. only about 15 percent of the population pays taxes. The balance do not pay taxes — kampong people, self-employed, ordinary folks outside the tax bracket. Now, all are caught in the tax trawler net and will pay consumption tax. Never mind, says the government, we will compensate the ordinary people.

OK. So we ask, what then is the size of the compensation and its value? Will it be larger than the revenue the government collects after implementing GST? Then the government ends up spending more after all.

What is the purpose of the GST? The GST, levied at a rate of X per cent, will replace the government’s wholesale sales tax and other indirect taxes. How much will the abolition of these taxes cost and how much will the GST raise?

I don’t have the figures but I am sure the reasoning by the government is that the GST will increase the amount of tax collected. Meaning the GST will increase government revenue by X amount. Revenue will likely to increase over time because of the expansion of the service sector.

Here is an interesting question. Somebody will make money as a result of introducing and implementing the GST. Ask this question: Who will collect the revenue? It will be collected by some companies already proposing or about to propose further privatisation of government services.

Who is actually paying the excess revenue that government collects after GST? If we study carefully, we can know who is NOT going to pay: Big business.

The tax burden on Malaysian business will be reduced by more than the GST revenue collected. How so? Because business which export a lot will be treated to a substantial decrease in costs because they will be eligible to have GST they pay on business inputs refunded.

So if business doesn’t pay, who pays? If businesses won’t be paying the extra GST revenue, then it means that workers and people on government benefits will subsidise businesses.

Cilaka punya government! We subsidise these people? Because, really, the GST is not a tax on business as input tax credits ensure that businesses effectively do not pay GST on their inputs.

GST paid by business on raw materials, tools, electricity and rent is refunded. Business is exempt from paying the GST.

The only GST payer is the consumer at the end, who pays a X per cent GST on the total price of the product.

Now you know why representatives of big business are waxing lyrical about the tax package.

What is the chief government selling point? It’s the so-called compensation. We will compensate the people, the advisors tell the PM. And the PM repeats what his officers and advisors say.

The income tax cuts, welfare rebates, compensation to government beneficiaries and self-funded retirees that is costing money will all be funded out of the projected revenue surpluses over the next few years.

But what if tax revenue is not as optimistic as planned? Will the government cancel or reduce the income tax cuts and the compensation package?

Where will the government find money to pay the compensation? Where did this surplus come from? Suddenly I was thinking about the removal of subsidies which the government is carrying out.

Removal of subsidies will cause severe hardship to the people who will duly translate that into political backlash for the government. That is why I said this GST is a potential nail in the coffin for the government.

The money for compensation come from attacks on the social wage — the sacking of tens of workers, massive cuts to hospitals, schools, libraries, child-care, public transport and public housing, and the denial of government benefits to young people and redundant workers.

When the government suddenly finds that a lack it has less of revenue, it will be announcing that more government services have to be cut back or abolished.

See whether the government has the balls to do that. — sakmongkol.blogspot.com

* Sakmongkol AK47 is the nom de plume of Datuk Mohd Ariff Sabri Abdul Aziz. He was Pulau Manis assemblyman (2004-2008).