Thursday, January 19, 2017

What Is Better Than GST?

There is recently this very public question of "What is better than GST?", and I think it needs an answer.

1. No GST.

The best alternative to the GST is no GST. There is no god-given right for the government of the day of any country to impose a tax on everything in life.

The GST is argued to be good because it reaped RM40 billion for the government. It is good for the government but no good for the general public.

A RM40 billion withdrawal directly from the pockets of the ordinary people as they go about their daily lives is a punishment for them, especially those with fixed incomes. It leads directly to a reduction of their real incomes.

The counterargument could be that the government is pumping back some money to the low income groups to "compensate" them for the GST. Yes, very nice conceptually but unlikely to be correctly practised - some who deserve may not get it and some who do not deserve get it.

2. Reduce Government Spending.

Since the purpose of introducing the GST is to fund the government deficit, it is logic that the alternative is to reduce government spending.

The government is spending too much money. The government should cut down on its lavish lifestyle. Projects should be better scrutinised for their economic viability, and cost cut by not over-specification. The most showy events in public today are government events.

3. No personal income tax.

If there should be GST which is indirect tax, there should be no personal income tax which is direct tax. To impose GST on top of the personal income tax is for the government to tax on taxed income of persons - the government is trying to discourage consumption on top of discouraging effort.

We know income tax has been reduced with the introduction of GST, but the argument here is that income tax should be abolished altogether at least personal income tax.

Cope out.

It is a cope-out argument that the introduction of the GST is justifiable because so many other countries are applying the GST or its equivalent. I think for once we should learn to argue from first principles and need rather than using a precedent from elsewhere. When is this country going to be original?


There are so many issues about the implementation of the GST. The whole thing boils down to that the burden of the implementation falls on the businesses. If they do not understand the system, they get punished. The incompetence of the implementors of the GST does not matter, for it is costless for them.


The current bout of inflation has been enormous, about 20-30%. The biggest cause has been the currency depreciation as a result of expectations of higher US interest rates and the outflow of the ringgit to other currencies. The ringgit outflow could be related to repatriation of stock market proceeds and profits, the redemption of ringgit bonds, foreign workers remuneration as well as better investment opportunities abroad. The lack of opportunities in the country is a serious concern. The 6% GST is a small issue, relative to these colossal impacts of the ringgit weakness. Nonetheless, the GST does not help in the situation and could the trigger that makes everybody decides that there is no more respective for the stability of retail prices. We have created inflationary expectations and we are passing the cost of higher prices to other people, with precedence from the government.

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