15Ogos2020

Agenda Daily

THIN LINE BETWEEN TAX RETURN AND TAX LOSS

In any economy, taxation is necessary. But when there is talk of additional taxes, people would naturally become apprehensive. So, if the government is thinking about introducing the GST here, the situation should be handled carefully.

 

A PEOPLE-FIRST BUDGET, EITHER HERE IN Malaysia or elsewhere in the world, has long been a cliche. It's overused and has become pretty meaningless as a selling point.

So when the New Straits Times on Dec 8, in its city section, headlined `People-first budget, City Hall unveils plan for a world-class city with better facilities and services', I thought it was stretching the imagination a tad too far.

Or maybe like most people around the world today, cliches instead of the bare truth have become fodder.

In essence, all public budgets are intended for the people — taxpayers and non-taxpayers alike. So, there's no need to scream that they are for the people.

In the case of the Kuala Lumpur City Hall's RM2.1 billion budget for 2010, to theme it `people first' may even do a disfavour to Prime Minister Datuk Seri Mohd Najib Abdul Razak's `People First, Performance Now'

slogan.

Let's be frank and factual.. More so when the budget, according to The Star newspaper report, was prepared based on opinions garnered from various residents' associations and non-governmental organizations.

The fact that no rate hike was proposed and there'll be a higher surplus should not lull ratepayers into believing that their tax burden has been reduced and they'll be getting better value for money.

Instead, since the budget is partly attributed to them, they should take ownership of it to ensure that the promises are delivered.

They might not be paying a higher assessment rate next year but it must be borne in mind that about two-thirds of 2010's allocation will come from the taxes we pay to the Federal Government.

While we should congratulate the Mayor, Datuk Ahmad Fuad Ismail, for the improved financial outlook, we must seriously consider if Kuala Lumpur is indeed better than it was a few years ago when it was also the Administrative Capital.

Let's ask the question, `Has City Hall not been making the same promise year in and year out?' The only difference is in how the slogan is worded.

Is Kuala Lumpur any better today than a few years ago when city fathers told us that with the Federal Government's administrative centre having been moved to Putrajaya, the city would be less congested and better taken care of?

The fact is, the city continues to be congested. The promise of a world-class public transport system remains a pipe dream and flash floods continue to exact miseries on the people.

In fact, a cursory visual survey of the city suggests that it's dirtier, more unruly and unkempt. Rubbish is strewn everywhere, garbage uncollected and grass uncut.

Yet, in a perverse way, the tall, uncut grass along the slip road linking MidValley Mega Mall to Jalan Maarof adds a rural feel to these upscale precincts.

And physical improvements alone will not make the city a better place for its residents and visitors. The talk of another skyscraper — this time exceeding 100 storeys — in the city will only worsen traffic congestion and add to the oversupply of commercial and residential properties.

Here, the city administrators and planners must carefully consider the side effects of allowing more skyscrapers to be built. Just think what the already overblown density would do to the city if more

skyscrapers were allowed. Just think what would happen to the economic and environmental values of the city.

Of immediate concern, of course, would be safety and public order. Let's face the fact that Kuala Lumpur has become unsafe for its residents and visitors. Unless violent crimes are reduced, the city will sooner or later be shunned by visitors and later by its own residents.

Explaining the GST

IN any fiscal system, taxation is unavoidable, and it's always burdensome to the people, especially the non­discriminatory ones.

Malaysians may not be the heaviest taxed people in the world, but Malaysians are also not the richest in the world. In fact, there is a yawning gap between the rich and the poor that makes the enforcement of taxation tricky.

On the contrary, despite the progressive lowering of corporate and personal income taxes, Malaysians still, on average, carry a higher taxation burden than residents of many nations of similar development status.

But the people do not complain too much because by and large the tax ringgit is fairly well-spent and the country over the decades has grown fairly robustly.

But that could have ended with the 1997/98 Asian Financial Crisis. Although the Malaysian economy recovered quickly from the crisis and the economic base became wider and stronger, the growth rate was pale in comparison to the earlier decades.

Slower growth, higher inflation and lower income increases are making taxation more burdensome on average Malaysians. Even the rich and the middle class are beginning to feel the effects of taxation.

So, when the government reactivated plans to further broaden the taxation base and cast the net even wider via the introduction of the Goods and Services Tax or the GST, the reaction was understandably one of concern.

But the bigger problem seems to be the inability of the authorities to articulate the issue and explain it to the masses.

A taxing situation

TO say that the GST will put the people first and enhance Malaysia's global competitiveness while at the same time acknowledging that it will raise the government's revenue by RM1 billion is not a convincing argument.

It's not even coherent. But that's what the Second Finance Minister, Datuk Ahmad Husni Hanadzlah was quoted as saying by the Press.

Let's face facts. All forms of taxation are a burden to the people who are paying them. That's why in the economy, we accept the term `tax burden' when we discuss the government's fiscal policies and actions.

And to tell the people that in Asean, only Brunei and Myanmar are not charging GST is not a very convincing comparison. It borders on naivete.

In the tiny, oil-rich Brunei, there's literally no taxation. Instead, the Sultanate subsidises its citizens in all ways possible. And do we seriously want to compare ourselves with Myanmar? I hope not.

Maybe it's more reasonable to compare ourselves with Singapore. The Republic charges

the rate of 7% for GST as opposed to Indonesia, our poorer neighbour, at 10%.

Since literally all goods and services manufactured, traded and consumed are subject to the GST, the taxation base is very wide. As such, the government should consider a rate that is lower than Singapore, bearing in mind that we are poorer than the Republic.

If we can do something better than Singapore, I think the people will be more willing to go along and part with their hard-earned income.

Of course, the additional revenue must be prudently spent to benefit the people. What I am afraid is the additional revenue will again be swallowed up by the burgeoning bureaucracy with very little left to benefit the rest of the people.

I don't claim to know a lot about the economy and public finance, but I think the proposed GST can be much lower than the sales tax of 5% that the government is now charging and the service tax of between 5% and 15% charged by outlets.

So, while the GST rate may be lower, the revenue could be higher, given the wider base.

But before the government proceeds with the implementation of the GST, it should improve its tax collection by targeting corporations and rich individuals who are either evading income tax or are slow in paying their taxes.

From January to July this year, the Inland Revenue Board (IRB)'s gross tax collection amounted to RM53.12billion. However, Ahmad Husni, who was quoted after the opening of the recent National Tax Conference in August, said it would be challenging for the IRD to surpass the RM90.6 billion collected last year. He said the government expects companies to contribute less in taxes this year due to the global economic downturn. According to media reports, unpaid taxes have averaged in the region of RM10 billion to RM14 billion the last couple of years.

A question of timing

THE proposal that the GST or the Value Added Tax (VAT) should be introduced in Malaysia is not new. It was first considered in the mid-1980s when the country was recovering from its first major recession.

But it gained currency during the rule of Prime Minister Tun Abdullah Ahmad Badawi. Soon after the landslide victory in 2004, his administration started toying with the idea.

It was announced that the GST would be implemented on Jan 1, 2007. But by that time, the Abdullah Administration had become so unpopular that little was said about it until Mohd Najib took over earlier this year.

Either on his own initiative or at the behest of his fiscal planners, Mohd Najib, who is also Finance Minister, appears to have embraced GST as his key fiscal agenda.

On Nov 21, he announced that a Bill pertaining to the tax would be tabled in Parliament for the first reading at the tail-end of the current sitting of the Dewan Rakyat.

Ahmad Husni was quoted as saying that the new tax was expected to be enforced 18 months after the second reading, which will be in March.

If my calculations are correct, then the new consumption tax would be implemented in August or September 2011, which is not very far off the next general election.

Depending on the response of the Opposition to the proposal, a new tax that theoretically affects all consumers could be an explosive election issue.

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