PAKATAN Harapan’s (PH) 14th General Election manifesto recently is riddled with so many contradictions that I wonder how it is going to manage the economy, should it form the government.
This is what happens when you present something without giving much thought and planning.
Let’s consider its promise to abolish the Goods and Services Tax (GST).
This will derail the fiscal consolidation by the government that began in 2009.
Abolishing GST will lead to an increase in deficit, and when this happens, the debt level will skyrocket further.
Credit rating agencies, such as Fitch, Standard & Poor’s and Moody’s, will downgrade the nation’s sovereign credit rating, meaning the cost of borrowing will go up.
The result will be a negative impact on the quality of life.
GST is intended to address structural issues that plagued the economy in the pre-GST era.
GST plays a significant role in diversifying Malaysia’s revenue base. It comes in handy in increasing revenue for the government, especially in a very low crude oil price environment.
Other countries have also introduced GST or similar taxes.
Earlier this year, Saudi Arabia introduced Value-Added Tax (VAT), while the United Arab Emirates introduced GST.
Strangely, the opposition wants to move backwards by abolishing GST when more than 160 countries have it.
The other structural issue that troubled the country was the Sales and Services Tax (SST), which was inefficient and unjust.
The opposition’s idea to replace GST with SST is an irrational idea.
GST, as opposed to SST, is a progressive tax system.
It is about making the government less dependent on income tax.
Before GST was implemented, out of the 14 million Malaysians eligible to pay income tax, only two million did so.
With GST, every transaction is taxed. Those who consume more will have to pay more, while those who consume less will pay less.
The low-income group will pay even less as many of the goods they consume are either zero-rated or exempted.
GST helps the government address cost-of-living issues with assistance, such 1Malaysia People’s Aid (BR1M), to the low-income group.
For middle-income households, the gradual reduction in income tax post-GST has lessened their burden.
Under the 2018 Budget, income tax has been further reduced by 2 per cent, benefiting around 2.3 million people.
Furthermore, 261,000 people have been taken out of the tax base under the budget.
This is how people benefit from GST.
Additional revenue from GST is returned to the people in the form of better and affordable education and healthcare.
Many Scandinavian countries have good education and healthcare systems because the people pay high rates of GST or VAT.
And there are also developed countries that provide free education because they pay high rates of GST or VAT.
One wonders how PH would manage to provide free education for all without GST.
DR IRWAN SHAH ZAINAL ABIDIN
Director, Asian Research Institute of Banking and Finance, Universiti Utara Malaysia; visiting research fellow in Islamic finance at Oxford Centre for Islamic Studies