GST likely answer to prevent instances of double taxation
THERE are many in the country who are calling for the reintroduction of the goods and services tax (GST) but is it all that it’s hyped up to be?
KLCA Tax Solutions Sdn Bhd managing director Christine Koh says putting aside political and public concerns, the answer is “yes”.
Koh believes GST is a transparent tax system with a wide tax base, making it fair game for taxpayers.
“GST is generally considered to be more transparent and less prone to tax evasion.
“Input tax paid throughout the supply chain can be claimed and eventually the retailer charges the final output tax to the customer, thus there is no double taxation issue,” she tells Starbizweek.
Koh, also a managing partner at Owen KLCA PLT, says the sales and service tax (SST) may be simpler to administer and less burdensome to implement, but it comes with its own set of concerns.
“Double taxation is likely to occur, especially when goods or services are taxed throughout the supply chain.
“For instance, an architect outsourcing designing work to a third-party interior designer. One round of tax is charged from the interior designer, then another round is charged to the customer when being billed,” she says.
On top of that, more grey areas like determining the harmonised system code for imported goods to account the level of sales tax rate has proven to be an uneasy feat.
Koh adds both regimes have faced pushback from a variety of groups for many reasons.
“GST, in particular, has faced criticism for its perceived regressive nature, whereby lower-income groups bear a disproportionately higher burden of the tax.
“The SST, on the other hand, may face criticism for being less efficient and prone to loopholes,” she says.
Tratax Sdn Bhd executive director Thenesh Kannaa says multi-stage consumption taxes like GST and Value-added Tax are more robust and efficient than single-tax regimes like the SST.
But the GST model that was implemented back in 2018 had some wide exemptions and could not be regarded as a “full blown” regime.
“No doubt GST addresses some of the inherent weaknesses of SST, but it does not mean that GST itself is without its own inherent weaknesses,” he says.
Thenesh cautions that if the government were to return to the GST system, a proper study and consultation must be done.
“The government must make data-driven decisions with regard to the choice tax system, the design factors and timing of implementation,” he said.
Thenesh also says that not everyone is likely to be in agreement, as it will be a major change that impacts many across different industries.
“While certain sectors may call for reintroduction of GST, it does not mean that other sectors would not raise objections if GST were implemented.
“There is also a risk of behavioural aspects whereby some businesses may adjust prices irrationally,” he notes.
In the meantime, while the SST is still in place, Thenesh says there are improvements to be made to avoid weaknesses like cascading effects and tax avoidance.
On the flip side, there are some that are strongly opposed to the re-implementation of the GST regime now.
Malaysia University of Science and Technology economics prof Geoffrey Williams says it is definitely not the time to bring back GST.
He calls GST a “bad tax”, citing reasons on how it will increase prices of goods and is cumbersome to implement.
“It is also highly regressive and hits low-income groups harder.
“As for administration, this tax costs businesses a lot of money, especially micro small and medium enterprises. There were big problems before with GST, especially with repayments which took years to settle,” he says.
While Williams agrees that both forms of the tax regime have their own drawbacks, he says GST will cost ordinary people much more.
“If GST was introduced today along similar lines as before it would take around Rm60bil out of the pockets of consumers and businesses. At least SST only costs ordinary people less than Rm35bil,” he explains.
According to Williams, the economic outlook is still in recovery with growth below target last year and incomes are still low as people recover from the cost of living hikes.
“If GST is introduced below 5% it is not net-positive and it would quickly rise to the levels in other countries,” he says.
When asked on how he anticipates the new taxes will do, Williams says the low-value goods (LVG), high-value goods tax, digital goods tax and the capital gains tax do not impact vulnerable groups but neither do they benefit them much.
“The biggest problem with the new taxes is that they are ad hoc and not part of a structured tax reform. They also raise relatively little compared to the problems they cause.
“For instance, The LVG tax makes life harder for low-income groups by raising prices of cheap online products,” he says.
With both forms of taxes having their own pros and cons, Williams says he believes the best way to mitigate this is to implement an e-payment tax system.
“An e-payments tax is a very small charge on electronic payments such as ecommerce and e-wallets. A 1% e-payments tax can raise Rm15bil, at 2.5% it can replace SST altogether,” he says.
Meanwhile, on a separate topic, Williams says that having low tax revenues is a good thing, because this means more money in the people’s hands.
He says that Malaysia must become a low-tax economy to compete internationally.
“Economies with low taxes and low regulations tend to grow faster. There is a need for reforms to create fiscal headroom but this does not mean just raising taxes.
“Rebalancing spending is essential. For example, funding civil service pensions from a Malaysian Superfund rather than direct government operational expenditure releases Rm32bil of committed expenses.”