GST (1)

There is so much to say about GST. And a lot more to be said about what more needs to be done. So far only the framework has been tabled. The framework is not important because it only sets out the mechanism of how GST typically works. Most GST countries apply the same framework.

What is important is the schedules, the flesh of the legislation. That is what the people need to study and consider. But we have no glimpse of that yet. Not even a draft. Why is it important to study the schedules? The schedules will determine whether Malaysia has applied the GST progressively or regressively.

The GST is a tricky tax. In a developed country with a high income society, the presumption is that it is progressive. It is progressive in the sense that it is capable of achieving the objective of taxing consumption as a means of targetting luxurious consumption. So when a country such as Singapore implements GST, we say, it's a good tax. It's an efficient means of collecting tax.

But how does Malaysia in the income arena. Are we not low income society? With a low income society, GST can do the cruel turn into becoming a regressive tax. How does it do that? At the qualitative level, a low income society has no choice but to consume only what it can afford. It does not achieve the deterrent objective of consuming luxurious consumption. At the quantitative level, RM50 of a low disposal income of RM1,000 is 5%. But RM50 of a high disposal income of RM10,000 is only 0.5%. That is the regressive end result.

Why is it important to ensure that GST is progressive? At the jurisprudential level, GST is an ideal tax based on the idealistic notion that it is supposed to be efficient and progressive. If it cannot achieve that, then there is really no basis for imposing GST. Remember, taxpayers are already subjected to other taxes such as income tax, real property gains tax. It would amount to over taxation. And there is an economic downside to over taxation. Simply put, over taxation removes the income from the pool required to drive the multiplier for growth.

At the implementation level, a progressive GST would tax the richer more and the poorer less. That is the litmus test of when to implement GST. Not whether it will win or lose elections I would think. If it is not possible to come up with a GST scheme that does just that, it means the time is not right. The income level of the people is not at the right level. So it is best to wait. Of course we look at the inflationary level, etc, but that is a secondary consideration.

And that GST scheme requires a lot of consideration. First look at the groups of people. Pretty much like how we deal with deciding who to put on the lifeboat where the vessel is sinking. Put in the children and the old first. So are we ensuring that all children's needs do not carry any GST? Remember we are taxing consumption. The parents may be paying but the consumption is made by the children. So ideally we cannot tax the children for its consumption. And we don't want to accidentally tax milk powder and we find that the kampung folks cannot afford to buy milk powder because they are a few cents short. That would be an inhumane society. So we go along that drift. Apply the same principle to all consumption by children such as medicine, books, toys. And we build up the same consideration for the old, the pensioners.

We hope to see meaningful discussion on the affected groups of people and from there build up a list of essential goods for this stage of the consideration. This list would form the zero rated goods.