The Malaysian government's confirmation that it has no plans to implement the Goods and Services Tax is a sensible decision.
The GST is a consumption tax. It is effectively a value-added tax. From a theoretical standpoint consumption taxes are intended to be broad-based and indiscriminate. It is an efficient source of revenue to governments.
The reality is that consumption taxes like GST are effective only when certain elements are in place. What are these elements?
First, you need to have a large middle-class base. This base provides the foundation upon which a large group of taxpayers with a significant disposable income provides the source of GST revenue. It is the consumption from this large middle-class base that drives a GST scheme.
Second, you need an economy that is in growth mode to gain acceptance.
The key is, of course, the first point. Malaysia has a narrow middle-class base. Only a small segment of income earners actually pay income tax.
Third, which is a corollary of the first point, the income disparity in Malaysia is still great.
The most widely accepted measure of income disparity is the Gini Coefficient. To amplify this point, I can do no better than to extract a recent post by my blogger friend, Sakmongkol AK47 here, where he displayed the following:
<Gini Coefficients by countries:
Source: UNDP Human Development Report
A commonly-used measure of development is the Human Development Index (HDI) devised and calculated annually by the United Nations Development Programme (UNDP). The HDI is preferable to a simple measure of per capita income because it takes into account other factors as well, including life expectancy and other measures of general 'well-being'. In the UNDP's 2004 Human Development Report, Malaysia ranked 59 out of 177 countries. With an HDI score of 0.793, Malaysia is just on the threshold of the UNDP's own definition of a 'Highly Developed Country', which is a score of 0.800 or above.