TODAY marks a new turn for Malaysia’s economy as it embraces a significant reform, that is the Goods and Services Tax. Coming into effect on April Fools’ Day, a joke it is not. Nor are there any signs of abandonment or postponement, regardless of the rumours that have been going around. So far, none of the countries that have introduced GST reverted to their previous tax system and it is unlikely that Malaysia will set a precedent.
It has been and will continue to be a great test for the government, lasting for at least a year or so up until the next general election.
Despite all the bashing and finger-pointing to the current government, GST has been in consideration for the past 30 years. Even after years of research, the crucial political will to push it through was simply not present. So, as we finally witness the realisation of GST implementation, it is truly the display of political will in executing one of the most challenging economic reforms in Malaysia’s history. Take for example, the last few days that saw several Customs offices crashed by a group of people demanding answers to more than 100 questions on GST. To be fair, some of the answers are obvious if they had cared to read and listen, and much chaos could have been avoided if these questions were posed much earlier rather than at the eleventh hour.
The resistance to GST is indeed strong as consumers expect higher prices of goods and services. For whatever reasons, nobody likes to pay extra. Anything that would take more from the consumers’ pockets will inevitably invite opposition. It is only natural and perfectly understandable. But when an analyst went as far as relating GST and its impact on prices and subsequently the cost of living, to the uprisings in the Middle East, one really has to ask, “Are we in that position?” Should the government also pay more attention to pacifying the people?
Chatib Basri, a former Indonesian finance minister jokingly said during a recent debate on regional and global integration in Kuala Lumpur that achieving free trade is like going to heaven — everyone wants to get there, but not too soon. Although meant to be a joke, it has profound meaning, and applicable to our current state of affairs. Achieving a welfare state funded by generous contributions of taxpayers is, too, as desirable as heaven, but no one wants to end up on the paying side.
Then there are the incoherent arguments against the GST implementation. On the one hand, the opponents argued that the timing is not right, due to price increases and rising cost of living. On the other hand, however, they seem to have forgotten about the recent reduction in fuel prices, let alone the January Bantuan Rakyat 1Malaysia (BR1M) payout and the reduced personal and corporate income tax rate. I cannot but suspect that there might be a partly-hidden agenda — the closer the implementation to the next general election, the better it would serve certain political ambitions, knowing that the polls would just kill off any effort to introduce necessary but unpopular reforms, such as this.
Let us now consider the counterfactuals. If the fact that prices are higher than they were, say, five years ago, justifies the postponement or abolishment of GST, is it realistic to wait until cost of living is low before we can begin implementation? General decline in prices largely happen in three scenarios. First, as technological progress drives down cost; second, as certain goods or services become increasingly out-of-demand; and third, during recessions and sluggish economic activities.
The first two are structural in nature. In other words, technological progress and obsolescence theoretically drive an indefinite fall in prices. In even simpler terms, one can wait forever for the lowest prices, but that day doesn’t technically exist. The final situation, although cyclical, creates an even more unreasonable environment to introduce GST, as Keynesian principles dictate that governments raise spending instead of taxes during recessions.
The people are concerned over the ways this additional income will be spent. Corruption and leakages remain the rakyat’s top concerns, and rightly so. Taxpayers do have the right to demand wise and careful public spending. But to think that GST is a means to solve the problems created by corruption is simply a misguided idea.
There needs to be a proper identification of the real problems at hand. In this context, there are two — the weaknesses and inefficiencies of the current tax regime, in addition to corruption. To wait until we eliminate the latter before going on to solve the former is simply unwise. Both cause undesirable leakages and must be simultaneously solved.
The writer is an independent researcher