Goods and Servises Tax Bill

22/2/2010

 Government is planning to table this bill in the upcoming parliament sitting.

 PURPOSE: IMPOSITION AND COLLECTION OF GOODS AND SERVICE TAX AND FOR MATTERS CONNECTED THEREWITH.

 The current consumption tax in the form of the sale and service tax (SST) will be abolished and be replaced with GST.

 The reason given by our government to implement this GST is to get more funds for development and expenses. (Estimated to get extra rm1billion then the current collection – which is rm12billions)

 However, there are few clauses which can be said to be arbitrary and disadvantage clause.

–          Clause 10(2) (a) – the minister may, by order published in the gazette, fix the rate of tax to be charged on the supply of goods or services or on importation of goods.

–          Clause 10(2) (b) – the minister has the powers to ‘vary or amend the rate of tax’

–          Clause 5 – the Director General shall have the superintendence of all matters relating to goods and services tax, subject to the direction and control of the Minister.                                                                                                                                  

This GST bill has accords ‘obnoxious’ power to finance minister.  The disadvantage of this clauses is that it gives too much of power to the finance minister to control and decide the rate following his discretion.  For example, in Singapore it was introduced at 3 percent however now the current level is increased to 7 percent. The same scenario can happen in our country if the finance minister has such discretion.

 GST is a broad-based consumption tax based on a value added concept. Unlike the present sales tax, which is a single stage tax, the GST is a multi stage tax. Payment of tax under GST is made in stages by the intermediaries in the production and distribution process, where the people will be paying more than the current price indirectly.          

Why do we need this taxation since there are countries that has rejected and planning to abolish this indirect taxation.GST was proposed in Hong Kong but however it was not implement, because they found the GST will affect their main income which is from the tourism industry.  However in New Zealand, there are planning to abolish it.  GST was introduced into New Zealand by the fourth Labour government, back in 1986.  At the time it was set at 10 percent. In 1989, Labour increased GST to 12.5 percent and extended what it covered and leaving exempt some financial transactions, incomes from rental accommodation property and businesses with turnover less than $40,000.

 The imposition of GST significantly raised the level of indirect taxation.  The proportion of government income derived from indirect tax has rose from 22.5 percent before GST to 33.2 within just the first two years of the new tax.  Recently there were announcement that the GST in New Zealand will be increased to 15 percent and this has provoked the working class to protest to abolish the GST which has been only favours to the rich people. 

Victoria University economist Bob Stephens has pointed out the overall effect GST in the 1980s of the partial replacement of income tax by indirect tax.  Between 1982 and 1988, “effective average tax rates including GST for couples on average earnings with two dependents increased from 18.7 percent to 24.1 percent.  But however, the average tax rates for similar couples on three times the average income declined from 40.3 percent to 34.9 percent.”  So we can see that indirect tax means the wealthy pay less of their income in tax while workers, especially the poorest, have more of their income taken in tax.

Thus, same as New Zealand, even though our government have exempted the basic needs goods and all the SME with less than rm500, 000 turnover a year regardless of the paid-up capital from GST, still the poor people will need to pay an additional tax for other goods and services and there is no guarantee that the rate of tax will not increased since the finance minister have all the discretion to fixed the rate he wish as given under the clause 5 and 10.

GST will bring inflation which will affect all rich and poor. Instead of GST government must be prudent in spending and stop all leakages, wastages and non productive projects. Civil service must be made more efficient and proactive. All these will save billions for government.

Therefore, we don’t need such a tax to be introduced now since our economic is going on inflation which subsequently may contribute more burdens to the middle class and poor people.

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