Tuesday, February 3, 2015

GST: An Economic Blunder?

The imposition of the 6% GST on 1 April 2015 will raise the price of goods. If not, then the GST will not raise any money for the government. Unless the government is asking businesses to absorb the cost of the tax, a day dream.

The GST has already raised the cost of services, namely, restaurant dining. There used to be no service charges or taxes of any kind. We gave tips. Then hotels imposed a 10% service charge, probably because Malaysians are not good in tipping. Then came the SST (Sales and Service Tax) in 1975 and hotels charged 10% service charge and 6% service tax. Eventually, this practice was taken up by restaurants outside hotels. And, of course, the 10% + 6% are imposed even on top of the cost of tea, peanuts and towels which used to be the implicit tips for the workers of restaurants.

By a series of indirect taxes, the government has successfully raised the cost of living of the ordinary people.

Now, the GST even threatens to ruin the lives of small traders.

Let it be clear that the GST now gives absolute power to the Customs Department to prosecute anyone which has not registered their businesses for GST.

(This works the same way as the Inland Revenue Board to prosecute anyone working or doing business who are not registered for income tax.)

The upshot of this is that the GST registration exercise is more akin to a census on all businesses in the country. Of course, not all businesses will register, either out of ignorance or defiance. Like the Inland Revenue Board that can charge anyone for the evasion of income tax payment, the Customs can do likewise for businesses with regard to the collection of the GST.

Non-registration, in itself, is already a crime.

Then, they can look through your books to see whether your turnover is more than half a million ringgit a year. This is where the grey area comes in. The enforcement part.

The government hopes that by the introduction of a software (hopefully it works well under all scenarios), the problem of  managing the GST is only a push of the button away. Everything will process itself and magically the coffers of the government will bulge.

I am only very sorry for the thousands of small traders or businesses who used to survive quietly in oblivion who will now be living in fear of a prosecuting force that will comb through very nook and cranny for any potential unregistered GST offender or, if registered, compelled to collect the GST.

Should the GST programme fails to live up to its expectation of a revenue booster for the government, I fear the pressure to prosecute will be high.

All this because the government is too big, too inefficient, too spendthrift.

The government should not replace lost oil revenue with the GST. The government should downsize, be more efficient, and get out of business. The government should just ensure law and order and security of the nation. And take care of our children. Too much?


walla said...

Today the price of something that was rm4 yesterday rose to rm6. It's just a packet of three-dish food, something you'd like to give a worker in a jungle.

Reason given for the hike was prosecution. The raw materials like beef, fish and vegetables were being openly sold by foreigners without papers all along. Prosecution congealed and they were nabbed so that supply stumbled and prices rose. Some have said they were let off after paying a grand in which case they may be expected to make it back doubled by raising the price of what they get to sell later. Or take it out on locals by crime.

Similarly, if local traders are under the specter of prosecution because they are unsure whether to register for GST, they may have to resort to creating an alternative economy in order to survive. Since they will be taking risks, their costs will increase which they will pass on to their customers. As it is, many registrants are still befuddled not just by the process but also how to issue tax invoices, get rebates or use software when they never had to touch a keyboard before. In some places, you get pained seeing how they struggle to write a cash bill, if at all decipherable in the end.

How much manpower can Customs spare to go after locals when at the same time you can daily see gas cylinders, bags of sugar, gallons of cooking oil and the likes loaded onto trucks and boats and conveyed across a porous border which is like two sandals across an invisible line?

In the aftermath, it may be said there will be gain in tax collection. But at what cost and by how much elsewhere lost in real revenue and man-hour from a more holistic perspective? Somehow one suspects these types of questions have not been assayed.

Desperation begets silofication to create new problems that compound a situation that cannot be 'compounded'.


walla said...

Stock already has holding costs. Come April, the full stock in a warehouse or storeroom will now attract GST as well which must be paid by month end. That's additional money out before goods are moved. With each minute they are not sold, the interest income foregone on the tax prepaid will accumulate.

That's also when the goods are simple and homogeneous. But what about businesses like hardware stores which keep many thousands of small and different parts? The advice was to bar-code each and every one of them by hand. Since thousands of different parts are involved, many hardware stores may have to close down. This will raise prices of parts and in places where there are few stores, faulty machinery in need of repair for farms and transport may have to be left idle.

One other matter. The penalty for one error in a submission is two grand. If ten typo's, twenty grand.

When people say GST replaces SST, they omit to add processing costs. These will be passed on to customers and clients who themselves need goods and services to work their businesses which contribute to income tax.

Basically the private sector should not be collecting tax. As it is, many are already facing costly difficulties in getting and keeping customers.

Those three to four hundred thousand GST-compliant companies are the backbone of the economy. If they are sundered by higher costs shaving their bottom-lines, the backbone may snap.

Anonymous said...

Is this... robbery by law...???