Sunday, November 29, 2009

GST and reduction of income tax

The introduction of GST should have 2 key implications apart from the obvious ones of the GST, being a broadbased consumption tax, being a more efficient form of taxation than income tax.

First, there must be a commensurate reduction in personal income tax. I still maintain that the ultimate target should be an 18% top tax rate. This will help to put Malaysia back on the competitive map.

Second, given the trade liberalisations that Malaysia so strongly subscribes to, the GST's value-added tax features will ameliorate some of the losses of customs revenue from tariff reductions.

That said, platitudinous and suitably nebulous remarks have been made on how GST will not be a burden on the ordinary rakyat. I hope there is true sincerity and genuine understanding on the part of the government regarding the true effect of the GST because all consumption taxes have a regressive effect i.e. where the lower income groups pay more as a percentage of their income than the higher income groups. The rakyat will want to know how "gentle" the implementation will be and what are the measures to "safeguard the interest of the people".

There is a projected increase in government revenues to the tune of an additional RM1 billion when GST is implemented (and sales tax retired ... what about personal income tax reduction???).

Here's a useful excursus on the impending GST regime done by KPMG.

1 comment:

nxforget said...

The politicians will always say "will not burden the rakyat" and "will safeguard the rakyat"

Whatever it means, it's always the rakyat that have to fork out more for the stupidity of the policies and failed government initiatives.

It use to be about 20% of the wage earners that pay income tax. Now, with the plan GST implementation, it's double jeopardy to this group. The 1% personal income tax is negligible compared to the consumption of this group.

I just love this government. It's for the rakyat, which rakyat ? ... the one that earns and can not declare for taxation but consume a lot. Even better, they even spent outside the country.