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Why we need GST

Posted: 20 Oct 2013 12:27 PM PDT

It will broaden the tax base and help those most in need

There are many more myths than facts about the goods and services tax or GST which the government plans to introduce not long from now. I will attempt to dispel some of the myths associated with this tax and put the GST in perspective.

The first thing to remember is that the GST is only one of measures that the government will be taking to overhaul the financial system of the country to find new sources of revenue and improve the efficiency of tax collection. Other measures are being undertaken to reduce corruption, to reduce waste and create highly transparent procurement processes among others.

GST is part of a holistic programme of improvement for the government which will be combined with these other measures to help us on our way to achieve high income and developed status in a sustainable and inclusive manner. That target is getting per capita income up to US$15,000 by 2020.

Our current tax base is way too narrow – we depend too much on income tax, both individual and corporate. Out of some 29 million in people in Malaysia, only less than two million people pay income tax.

We cannot afford to go back to these same people and corporations and ask them for more and more tax – we can only hope that as their income increases, they will pay more tax. In fact, if we don't widen the tax base, there is absolutely no room to cut income taxes further.

For various reasons, including the fact that much income goes unreported, we need to broaden the tax base. A value-added tax such as GST, where a tax is paid on every step in the value-added process is a consumption tax and therefore taxes those who can afford to spend.

If you are making money but don't pay tax for various reasons, you still want to spend on the things that you want to have and to use. And when you consume, the government can capture a part of that as income for itself through the GST.

If you are concerned about being adversely impacted by the GST, it is important to remember that when GST is implemented we can zero-rate or set the tax rate at zero for any number of essential goods and this is what the government intends to do to ensure that citizens do not get burdened by taxes on essential items.

Also there is currently the sales tax as well as the service tax now of 6-10% which will be repealed once the GST is introduced. In the first few years at least, we expect that the GST will be revenue neutral for the government because gains will be offset due to the termination of the sales and service taxes.

But further out, the GST will help the government gain extra revenue. This will be because we expect more and more people to become affluent as measures to increase income bite and become reality. As consumption and affluence increases, government income from GST will increase in tandem.

What's in it for citizens? First, because essential goods and services that will be consumed such as food, public transport and education are likely to be zero-rated, consumers will not be paying extra taxes here. Second, as government revenue increases, it has more money to provide for social safety net programmes such as BR1M, the 1Malaysia cash assistance programme for lower middle and low-income groups.

But contrary to popular belief, GST implementation is like to be only sometime in 2015 if it is announced at the forthcoming Budget because you need a lead time of 12 to 18 months to prepare for the value-added tax.

Imagine say manufacturing a consumer product such as a bottled drink and that you are the manufacturer. You will have to buy all your inputs such as sugar, flavour, bottles and so on from suppliers. These suppliers will include a GST in their sales to you.

When you sell your bottled drink, you will have to add on a tax to your product which represents the GST. But you are entitled to claim a rebate on the tax to the value that you did not add, in other words the tax your suppliers added on. To do that you have to keep proper and complete records.

The government will be helping businesses, and especially small businesses to set up the record-keeping system for this so that there is a smooth transition to the value-added tax system without any major hiccups.

This record-keeping produces other attendant benefits as well. For instance, studies have shown that Malaysia has large capital outflows which can't be reconciled in the national accounts. As much as 80% of this is said to be from transfer pricing where firms transfer costs to various centres around the world to minimise the tax.

Once a GST is implemented it makes it very much more difficult to do so because complete records are kept at every stage of the value-adding process. There are records of who sells to you and at what price and the same for yourself, all along the chain. It is just a matter of going down the chain to see if you are playing around with your figures.

Not just capital outflows but all manner of other things can be tracked down too. It becomes easier for Customs to determine who is avoiding duties and for the Inland Revenue Department to check to see who is evading taxes.

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Sudah lah ‘Jib! You Haven’t Got it!

Posted: 20 Oct 2013 12:19 PM PDT

Sudah lah 'Jib! You haven't got what it takes to lead modern Malaysia.

Humiliated by the recent national election and overwhelmed by mounting problems, Najib resorts to the typical tricks of third-rate Third World leaders. He travels abroad frequently to distract himself and Malaysians, and when at home he bribes his way through problems.

Barisan's loss in the popular votes during the last election was only the latest expression of this lack of confidence in Najib's leadership. The man has been coasting on the memory of his illustrious father, Tun Razak. For that reason Malaysians have been too generous in giving Najib a pass for so long.

The show cannot go on; the nation can ill afford it. There will be a splendid opportunity for the nation to be rid of his leadership without having to wait till the next national election, and that will be the upcoming parliamentary budget debate. All we need is for a handful of Barisan MPs (12 to be exact) to see through this character so he can be ejected from the Prime Minister's seat. He does not belong there.


Peripatetic Wanderer

Back to Najib's third-rate Third World leadership tricks, his most recent – and most expensive – was the junket that took him through San Francisco on his way to New York. That was literally around the world. Rest assured there will be many more such trips in his ultra-luxurious, custom-fitted full-sized Airbus jet, burning the rakyat's precious ringgit.

The only saving grace this time was his uncharacteristic prudence financially in landing his jet at Oakland instead of at the exorbitantly expensive SFO. Najib however, more than made that up by staying at the Fairmont Hotel in a suite that would have pleased the likes of King Saud.

In the 1960s, traveling extensively abroad was also the favorite refuge for Indonesia's Sukarno. It was left to his ministers back home to tell the rakyat to eat rats and thereby simultaneously solve two problems – widespread starvation and rat infestation.

More recently there was the example of Tunisian leader Zine el Abidene, now languishing somewhere in the Saudi desert with only his ill-gotten wealth to sustain him. Meanwhile he faces a death sentence at home and the Interpol has a search warrant for him. As for his wildly extravagant and obscenely ostentatious wife, a former hairdresser, she too has long ago abandoned him. She is also on the Interpol list for money laundering. Take a glimpse of her during her heyday; she has the uncanny resemblance of someone familiar to Malaysians, and not just in facial features.

Sukarnos's fate in contrast was less severe. At least he died and was buried in his native land. Something for Najib to ponder!

Malaysia is far from being Sukarno's Indonesia. That however, is setting a very low bar. It tells us how far we have fallen that the two countries are now often mentioned in the same sentence. While Malaysia is also infested with rats, Malaysians are thankfully not starving. Instead what we have are even more rapacious rats continually raiding the people's Treasury. The biggest of all is Najib.

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Allah Judgment: ipse dixit, we won’t fix it

Posted: 20 Oct 2013 12:03 PM PDT

Many have spoken to me about last week's decision by the Court of Appeal upholding the Home Minister's prohibition on Christians using the word "Allah" in printed materials.

I've studied the decision. Here I lay out my observations and offer some concluding thoughts.

What the Judgments Say

(The Court of Appeal released 1 Summary and 3 individual Judgments. I also read the 31st December 2009 High Court Judgment. In what follows, "Judgments," refers to one or more of the 4 Judgments released by the Court of Appeal.)

1. Government-Islam has priority. Article 3(1) of the Federal Constitution reads: "Islam is the religion of the Federation; but other religions may be practised in peace and harmony in any part of the Federation."

Article 3 is in Part I of the Constitution, whilst Articles assuring the rights of liberty, no-enslavement, equality, free movement, speech, assembly, association, etc. are in Part II.

According to the Judgments, it follows from the preceding statement that rights in Part II have to be curbed to protect rights in Part I. (Note: the Constitution has 15 Parts.)

According to the Judgments, since Islam is mentioned before 'other religions' in Article 3(1), all non-Muslims in Malaysia must (1) agree with the government and the Court of Appeal that "Allah" describes only the Official Malaysian Muslim God, and (2) use another Name in place of "Allah." It matters for nothing that "Islam" and "other religions" are in the same sentence, all that matters is that "Islam" appears before "other religions."

2. Historical and global usage is irrelevant. Based on the preceding argument, the Judgments say it is not necessary to consider that (1) the Name "Allah" pre-dates Islam, (2) the Name is of Arabic (not Malay) origin, (3) the Name has been used for over 4 centuries by Malay-speaking Christians in Malaysia, (4) many Muslims in Malaysia do not object to Christians addressing God as "Allah," and (5) that Muslims in no other country object to non-Muslims referring to God as "Allah."

3. Judges' Private opinions trump global scholarship. The Judgments treat opinions gleaned personally from the internet by one of the Judges as worthy of more consideration than the opinions of eminent Christian leaders and scholars. The Judgments ignore the global presence of Christianity and the special significance of the Rome-centred Catholic Church led by the Pope. 

(The publisher of the Herald - Catholic Weekly is Tan Sri Datuk Murphy Pakiam. He speaks for the Catholic Church. The leaders of other Malaysian churches concur with Archbishop Murphy about the usage of "Allah" for God.)

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