The RM23.2bil question BY: M. SHANMUGAM

The RM23.2bil question

Saturday, 4 April 2015
BY: M. SHANMUGAM

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There is a lot of confusion and complaints of price hikes. The authorities are hoping that given time, the issues will be ironed out. — Bernama

THE sentimental tales leading up to the implementation of the goods and services tax (GST), while touching, probably did not tell the whole story.
The old shopkeeper winding up his business after 40 years because he was unable to cope with the new demands draws both interest and sympathy.
But whether the business was closing down because the owners had no one to carry it on or were facing difficulty in complying with the requirements of the GST is debatable.
This is because there is also a trend of businesses closing down because they have not been keeping proper books and paying taxes due all these years. A way out before the GST system tracks them down is to close down and open a similar business under a brand new name three months down the road.
An operator of a famous food outlet is paying some RM3mil in back taxes for not keeping tabs on his service charge. If not for the brand name, the operator would have closed down his business and opened another in the same spot two months down the road.
Sentimental stories aside, the reality is that the GST is here to stay. No amount of protests, complaints or griping will alter its course.
There is a lot of confusion and complaints of price hikes. It is to be expected. The authorities are hoping that given time, the issues will be ironed out. They have at least a year to do so.
Likewise, prices will also stabilise given time because most of it is driven by demand. Economic logic tells us that excessive profits will encourage a bigger supply, and eventually, prices will even out.
So, when developers contend that prices will shoot up because of the GST, one needs to delve into the past to see whether developers had, at any one time, ever said that prices would be coming down. No, developers never say prices are coming down.
The same applies to the car traders. For all the noise coming out from that sector that prices were going up because of the GST, the reality is that post-GST, several car companies have announced that car prices were coming down!
Generally, product pricing is driven by supply and demand – the fundamentals of economics. Surely, if a developer is unable to sell houses, then he has to offer discounts or incur a holding cost.
If a car dealer is unable to offload old stock, doesn’t he always sell at a discount to avoid holding too large a stock?
Fundamentally, the GST is a more efficient tax system compared to the current one where up to 83% of the working population and companies registered with the Companies Commission of Malaysia (CCM) are not captured by the tax map.
The GST is already capturing a wider group of companies and individuals who have not been paying tax. For instance, a restaurant owner tells of how, for the first time in his years of running the business, his ice supplier gave him a receipt inclusive of the GST.
The supplier is not to be blamed. By design, the previous tax system allowed a large “black” economy to prosper in Malaysia.
That is why we often heard complaints of the char koay teow seller or transport company operator earning much more than a salaried employee and paying less tax or none at all.
Based on official numbers in 2012, out of the 13.2 million salaried workers, only 2.24 million individuals or 17% paid tax. The average in previous years was worse – at 15%.
The trend is the same for companies registered with the CCM. Of the 1.02 million entities registered as at end-2012, only 159,000 or 15.6% paid taxes. Of course, we have to take into account that many companies are dormant or loss making.
But the reality is that less than 17% of Malaysia’s working population and even a smaller percentage of businesses are paying taxes to support a nation of 30 million people.
With the GST, personal income tax and corporate taxes are to come down by between 1% and 3%. This is because the Government expects revenue from the collection of the GST to increase over time.
The 2014/2015 Economic Report states that the amount that the Government expects to collect from the implementation of the GST from April 1 to the end of this year is RM21.7bil. That was the estimate in October last year.
However, the latest estimate is that the amount to be collected is RM23.2bil – an increase of RM1.5bil over six months. Of the amount, the net additional revenue that the Government is getting is RM5.6bil.
This is after stripping out the revenue of RM13.8bil foregone from the discontinuation of the sales and services tax and RM3.8bil for exempted goods.
The estimated revenue increase is because initially, the Customs Department had estimated only 250,000 companies to be registered under the GST system.
At the close of the registration period that had been extended to February this year, the number was at 362,748.
What is startling is that of the numbers registered, some 30,000 companies have not filed their taxes before. Their businesses were generating a revenue of more than RM500,000 a year and did not have a tax file.
In the months and years to come, the number of companies that are GST-compliant will increase. So too will the collection by the Government that will rise significantly from the current estimate of RM23.2bil.
The question is: How will the Government spend this money?
For this year, of the RM5.6bil in net revenue accrued to the Government from the implementation of the GST, a sum of RM4.9bil will go back to the lower-income bracket in the form of the Bantuan Rakyat 1Malaysia (BR1M) aid scheme. This leaves some RM700mil for the coffers of the Government.
But in future years, the collection will rise. So, will the BR1M payment increase? Where else would the money be channelled to? Would it give rise to complacency and leakages in the system?
The GST is here to stay and will be accepted, given time. Fundamentally, it is a tax system that is accepted in most developed countries.
But with the GST comes greater demands and responsibility in handling public finances.

The RM23.2bil question BY: M. SHANMUGAM

The RM23.2bil question BY: M. SHANMUGAM

The RM23.2bil question

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