NST Leader: SST dilemma

TAXES are taxing. There is no doubt about it. But without them, no government can ensure the wellbeing of its people. Benefits come with a price.

It was for this reason that there was some sound and fury — even from an economist or two — just days before the government increased the Service Tax from six per cent to eight per cent on March 1.

The economists may have a point. They want the government to first tame the cost of living issues before hiking the Service Tax. The average inflation rate of 2.6 per cent may be on their side.

But they do acknowledge that any administration of any hue needs funds to deliver the goods to the people: schools, hospitals, roads, public transport, housing and some such things.

The people must acknowledge this, too, especially when income and corporate taxes do not cast their net as wide as the Sales and Service Tax (SST) does. But the Goods and Services Tax, which is a touch-me-not political hot potato, has the broadest base of all taxes.   

The unity government faces a tough challenge. A view of the Finance Ministry figures in its Economic Report 2023/2024 suggests a triple whammy.

Firstly, Malaysia's total public debt is expected to swell to a staggering RM1.26 trillion this year. This is higher than last year's RM1.147 trillion. A year before it was lower at RM1.079 trillion. Talk about a mountain of debt.

Secondly, the budget is being financed by borrowings, which stands at 64 per cent of Malaysia's gross domestic product (GDP), uncomfortably just a percentage point away from the statutory limit imposed by the Development Fund Act 1965.

Anything more, would mean going back to the Parliament to increase the statutory limit. Add to this a third whammy: an ambition to reduce the budget deficit to 4.3 per cent of GDP this year. It last read as five per cent of GDP. 

But the SST isn't without its shortcomings. Deloitte indirect tax partner Senthuran Elalingam starts with its nomenclature. The SST isn't a single tax, he points out.

There is a sales tax and service tax, each operating independently, with no common principles, Senthuran argues. Put differently, the tax is just a label of convenience. We will stick with "convenience". To Senthuran, the SST is "more skewed to the manufacturing and services sectors, with other sectors affected only in limited fashion".

Tax rates, too, are inconsistent, with sales tax charging a rate of five per cent, 10 per cent and exempt rate while the service tax comes with six per cent, eight per cent and exempt rates.

From a tax policy standpoint, the tax partner says, it is not good for one form of business activity to be taxed on totally different principles to another form of business activity, citing manufacturing and services sectors as two uneven playing fields.

Senthuran and many others are rooting for GST because it can bring most of the 33.5 million people in Malaysia within its net unlike the SST.

He is right. Figures disclosed in Parliament show that on average, GST brought in a revenue of RM44 billion per year as compared with the RM28 billion the March 1 hike is estimated to collect. That itself is an argument for the GST.

But between now and then, the government can do something: make the SST an even playing field.  

Most Popular
Related Article
Says Stories