The IMF’s call for Malaysia to expedite a goods and services tax (GST) and slash subsidies is part of its larger – and now widely discredited – neo-liberal agenda. The IMF itself is struggling for relevance now as many developing countries especially in Latin America have shunned its advice after seeing the damage done to the national economies of that continent.

The neo-liberal agenda, part of the “Washington Concensus”, is to cut taxes for the rich and the corporations, slash subsidies on social spending, and promote privatisation of essential services or “user-pay” models that benefit large corporations, including MNCs.

The GST is a regressive tax that will hurt the poor, who are now outside the income tax bracket. If a tax on spending is introduced, the poor will bear a disproportionately higher tax burden (in terms of their spending compared to their income) than the rich.

What Malaysia needs is progressive tax system that will narrow the gap between the rich and the poor and provide more funds for public spending (minus all the corruption, skimming off, rent-seeking and cronyism) for essential services such as health care and education. Look how our under-funded general hospitals are struggling to cope with H1N1 and how many patients have to wait for ages to see a specialist.

The IMF should keep out of Malaysian affairs. It is a failed body that is irrelevant – and indeed, harmful – to developing countries.

This excerpt from the Singapore Straits Times (17 August):

KUALA LUMPUR – THE International Monetary Fund (IMF) has cautioned Malaysia not to delay plans to introduce a goods and services tax (GST) and to remove subsidies to ease pressure on its budget.

The taxes were proposed in 2005 but were shelved due to political and inflationary pressures and since then, Malaysia’s budget deficit has surged and will hit 7.6 per cent of gross domestic product this year.

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15 COMMENTS

  1. “IMF’s call for GST is part of neo-liberal agenda”

    Anil,

    Yes indeed.

    Looking at the Global picture…

    “…An anomaly. It is claimed (by Joseph Stiglitz, one-time chief economist at the World Bank) that since the IMF became involved in arranging structural ‘assistance’ to the majority of African counties, income in those countries dropped by an average 23%.

    Did any nation avoid this fate? Yes, said Stiglitz:

    Botswana. Their trick? ‘They told the IMF to go packing.’ In the same interview (to the Observer newspaper in the UK in April 2001) Stiglitz went on to attack the the US for ‘asset-stripping’ nations in debt to global financial institutions.

    (Joseph Stiglitz also won the Nobel Prize for Economics in 2001, was chairman of Clinton’s Council of Economic Advisers, and in 2002 is a professor at Columbia University. In his new book, Globalization and Its Discontents, Stiglitz argues that far from the current system of global free trade and open markets being both beneficial and inevitable, it is actually deeply damaging, with many better alternative options available).

    Another similar story is how ‘during the Asian financial crisis in 1997, Malaysia rejected international assistance to shore up the economy and imposed stringent capital controls.

    Branded lunacy at the time, the strategy has since proved successful’ (Source: The Guardian 26.06.02)…”

    http://www.feedback.nildram.co.uk/richardebbs/essays/gfinance.htm

    The game is as old as the Empire…

    Global Empire North and South – FLOWS OF MONEY AND POWER

    flyer168 – Take note of this! – The Global North has for decades “sold a model of development based on debt.”

    Loans pushed by First World lenders and eagerly grabbed by corrupt Third World elites have left Global South countries in a debt trap $3.2 trillion deep — often with little real development to show for it.

    Much of the money simply round-trips back to First World suppliers or offshore banking havens. Meanwhile, a new era of imperial domination has begun with interventions to secure control of scarce resources like oil and coltan.

    GLOBAL NORTH – G8 NATIONS •
    MULTINATIONALS • WORLD BANK • IMF…” –

    http://archive.org/stream/AGam…

    John Perkins – “Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars.

    They funnel money from the World Bank, the U.S. Agency for International Development (USAID), and other foreign “aid” organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet’s natural resources.

    Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization.

    I should know; I was an EHM…”

    John Perkins – Hit Men, Jackals, and the Truth about Global Corruption – https://www.youtube.com/watch?v=6p5pXqQEGM4

    Malaysia’s National Debt this minute – Rm599 Billion –
    http://www.nationaldebtclocks.org/debtclock/malaysia

    Our Interest payment is RM22.6 Billion per year…!

    Bolehland must be defaulting with their repayment like 1MDB…!

    The GST collection just about cover this yearly payment…!!!

    $17 Trillion U.S. DEBT – A Visual Perspective –
    https://www.youtube.com/watch?v=WFP-2_iDYMU

    National Debt Problem – 17,000,000,000,000 – Stossel Waking People Up –
    https://www.youtube.com/watch?v=G2GFVadVBcs

    Why the national debt will never be repaid – https://www.youtube.com/watch?v=gi2mR4x2ld4

    Another Rothschild’s bankster’s enslavement agenda on the smaller nations !

    You be the judge.

    Cheers.

  2. Neo-liberal agenda or not, a simplified tax regime (whether the tax is high or low) is still better than a complex tax regime.

    And a government can do a lot with a broad-based consumption tax like a GST.

    Increasing the amount of money collected from a consumption tax allows the government to reduce income tax rates and collection amounts and still maintain tax revenues at reasonable levels.

    Since Canada introduced the GST in the early 1990s, the tax rate for the lowest tax bracket has been reduced signficantly, while that bracket has been raised, so that many Canadians in the lower-income levels no longer pay income taxes.

    Canadians currently pay 5% in GST (down from 7% when it was introduced) and additional provincial sales taxes (such as 8% in Ontario or 0% in Alberta). In some provinces there is a harmonized tax (Combination of Federal and Provincial taxes), as high as 13-15%.

    While it is a shock to see a retail price jump by 5-15% at the cash register, the fact that the tax is open and transparent is more encouraging. The GST often replaces hidden taxes that exist at the wholesale level.

    The government also may choose not to collect sales tax on certain products – staple foods, children’s food, cheap meals less than CAD4, shoes less than CAD30, among others – which reduces the cost of these items for all groups.

    The Canadian government also gives an annual GST credit to Canadian taxpayers who pay their income tax.

    By the way, it is ironic that the GST was:

    *introduced to Canada by a “Progressive Conservative” (so-called “Neo-Liberal”) Party Prime Minister (Brian Mulroney) at 7%;

    *fought, accepted and expanded by a “Liberal” Party Prime Minister (Jean Chretien) who mooted the idea of raising the GST to 10%; and

    *reduced by 2% (to 5%) by another “Conservative” (so-called “Neo-Liberal”) Prime Minister (Stephen Harper).

    Knocks that Neo-Liberal theory out the window, doesnt it?

    Really, it’s not the taxes that matter – it is what the government chooses to do with the revenue!

    Regards, Moaz Yusuf Ahmad

  3. Many Malaysian especially business-person earning mega bucks end up paying little taxes compared to the “makan gaji” folks.
    There are also plenty of foreigners who work illegally and legally who also don’t pay any taxes yet enjoying many of the subsidies and infrastructure which has been put up at a high costs using tax payers money.
    The only way to get some thing back is thru’ GST! So why not?
    A friend of mine runs 2 vegetable stalls in a local market. They go for overseas holidays every year and have 2 luxury cars. yet they have not paid a sen in income taxes at all. So why not get something back from them thru’ GST?

  4. Resist implementing GST in Msia for as LONG as possible. No doubt it is the most effective way to collect Revenue. But it will Impact on the POOR more.

    Just look as S’pore. From 3% to 5% and now 7%. Within the next few years it will definitely increase to 10%. With the implementation of GST there, nearly EVERYTHING increase including Essentials goods[sugar,rice, flour, etc]. For those who does not need to pay taxes before, now nearly every Adult S’poreans/PRs are Taxpayers!

  5. I disagree. Even with the current income tax centric system, corporations don’t end up paying their taxes. Ultimately, any effort to lift their profits after tax would result in the price adjustment to their products sold to the public, which is essentially a “user-pay” model anyway. Besides, a tax based one’s choice in spending rather than his/ her earning is a fairer tax – designed to provide the government a revenue stream based on the public’s choice to spend rather than save their income for a rainy day.

    It will also curb non-compliance. A large number of eligibly taxable rich are not declaring their income for income tax purposes. The best solution to that, is to tax them when they spend that income.

  6. Already a mega huge proportion of the public is “priced out” of living in Malaysia. Every month is not enough and the individual debt increases higher and higher.

    In other countries where GST has been implemented, thier disposable income is much much higher. Like Singapore for instance, nearly everybody earns SG$5000 a month. Even your kuli earns SG$3000 a month.

    Adding to that, things such as groceries, broadband, handphone rental are very cheap. Go to the supermarket and with SG$100, you can get loads of groceries. The same amount of groceries in Malaysia, yes, exactly the same amount, would cost RM500. (And yet we produce of own rice for example)

    The living expenses eat a small amount of your total pay in Singapore which practices GST.

    In Malaysia, average person still earns RM2000 and below. If you are spending few hundred ringgit on gorceries alone, who is going to pay your rental and car loan and other expenses such a petrol, school fees etc?

    The poor would get screwed. And who are the poor? It is mainly the Malays and Indians.

    And we are still voting BN?

    And the kampung poor people still voting BN?

  7. Right now, the poor may not pay income tax, but they still pay indirect taxes just like everyone else.

  8. I AM NOT A GOOD ECONOMIST BUT I AM GOOD TO FORCAST WHETHER WE WILL BE RICH OR POOR IN THE FUTURE.I THINK IT IS NOT WRONG TO LISTEN TO YHE IMF.JUST SEE THAILAND DURING THE 1998 CRISIS,THEY BORROW MONEY,MALAYSIA GOES ON ITS OWN,WE THOUGHT WE ARE CLEVER BUT NOT WE JUST CROSS BY LUCK,SEE THE BAHT TODAY,IT IS 10 PERCENT STRONGER THAN THE RINGGIT,WHICH MAKES A LOT OF DIFFERENCE.

  9. Narrow the gap between rich and poor? Here’s a solution. Stop hiring foreign workers. No more Indonesian/Philippino maids. Want a maid, hire a local. No more CEO’s from UK, US, Australia, India. Again hire a local. Scared this will make Malaysia uncompetitve, get real, Malaysia is already uncompetitive (corruption, bribery, cronyism, Mongolian interpreters…). People who think they are well off because they can afford to pay (not not) their slave, sorry maid, a paltry 450RM a month – need a dose of the smelling salts of reality.
    If Malaysia wants to compete – be it with Singapore, or Hong Kong or China or anyone, they need the GST (Goods and Services Tax) or VAT to make their exports competitive. Don’t poo poo the IMF and remember it was under Anwar as the Finance Minister and Tun that hte GST was first discussed. Had the government any guts they would have introduced the GST in 2007 as planned and Malaysia would be much better off today – or at least must closer to being better off.
    Get ready folks its coming and expect it to be raised in October for a start date in 2011.

  10. GST is set up as a refinement of general taxation policy, aimed at addressing income inequality and its derivative, consumption inequality. Thus the more you consume because you are richer, the greater amount of tax collected from you.

    Advanced nations like UK, Singapore and Australia have brought in GST, taxing as much as 10% of consumption. The immediate effect of its introduction would be a big jump in prices often more than the actual GST imposed. This would prove disastrous to the large impoverished group and the lower middle class of our population. On the removal of all subsidies, we have seen the devastating effects in2008 when oil subsidy was sharply reduced.

    The inflationary effect may also require a rise in interest rates with its negative effects on economic growth.

    For the lower-socio economic groups to be protected from the burden of GST and removal of subsidies, there needs to be a minimum wage introduced and a good social welfare system providing safety net functions. Hence no help to the budget deficit situation, which was what IMFs concern was!

    We are truly not having good options to choose from to deal with our worsening economic problems.

  11. The argument that there is a race to the bottom vis-a-vis tax cuts to attract foreign investment is over-stated. Most foreign investment is actually found in high taxing countries because these countries also offer highly skilled workers, good infrastructure, rule of law and so forth.

    There is a choice to attract foreign money apart from lowering taxes and forcing in a GST-to argue there is no choice does not match the relatively mixed evidence on show.

    A GST has its pro and cons-the pro is it brings in a lot of revenue from activities now outside the tax system, like services (e.g. haircuts) which are probably going untaxed now. Broadening the tax base to include services is an idea worth pursuing. It makes it harder for a black market to continue at a grand scale.

    The con is very much an issue of equity-like most free market concepts, there is an implicit assumption that everyone has the capacity to pay, and whether or not they buy something depends on their willingness to pay-in other words, if it is important to you, you’ll pay. We know this is a flawed assumption. As well, it is a tax on consumption-the issue is the proportion of income spent on consumption between the rich and poor. The rich may consume 20% of their income whereas the poor may be spending 100%. In relative terms, a GST is a huge burden on the poor.

    Before a GST comes in, M’sia must first have a more equal society where most people have a capacity to pay for most goods and services. This is not the time for it. However, it should be discussed as part of a total review of the taxation system in Malaysia.

  12. mr netto,
    i beg to differ based on experience in spore – though i have no idea how msia will implement its gst.
    ie i don’t know what u mean by ‘neo-liberal agenda’.

    for sure no one likes the gst in spore also. but it helps in some way to reduce taxes for the poorer guys, and ‘punishes’ the rich.
    its other name is Consumption Tax.

    eg 1) if i buy a small car in spore like a proton, my gst is lower than the rich guy who buys a luxo car like maserati.
    2) i stick to my old-faithful tv. but the guy who can afford one go out to buy a 50inch lcd tv. he has to pay because he buys more.
    ie the gst ‘punishes’ those who spend more. in other words, the richer you are, the more likely u are to buy more things, so u have to pay more in gst.

    the poor regular sods like me, the salarymen, are supposed to gain by the government lowering taxes in other areas (am sure msia is planning this also).

  13. You can’t charge high rate income tax to rich businesspeople, after a certain level they effectively don’t have incomes. They may fly everywhere in a personal jumbo jet and have a garage full of megadollar cars, but their accountant will tell you they have no income. All that high-rate income taxes do is annoy better-paid, highly-qualified workers.

    Malaysia’s myriad tax bands look a bit like progressive tax, but they look to me to be surprisingly light. They should have just 2 (or 3 max) bands to make it easy for everyone to understand. If there’s massive income disparity in the country, they should increase luxury taxes and pay a tax credit to every citizen as a ‘Cost of Living Allowance’. Income tax should start from the first ringgit received for everybody, so there’s no doubt over whether a person should be attending a tax office or not.

    They should also impose a devastating(!) land tax in Malaysia. I am surrounded by decaying unused shop lots. How can it be productive to leave them empty and yet the prices are so high when one makes an enquiry? That is pure market manipulation through stockpiling. Either make sure someone pays taxes on them or push them back into the market at depressed prices so that people can buy them and set up productive businesses in them.

    I think the IMF should (intervene in) Malaysian affairs.

  14. True but whether you like it or not countries compete heavily to lower taxes for corporate and the rich..There is no choice..

    GST will come just like rain and the sun..

  15. One way to gap the divide between the rich and the poor is to subscribe to equitable compensation. Example: How can the a CEO derive an income of RM500,000 a month when the sweeper gets only a few hundred? The top managers of a company should not be paid more than 40 times that of the lowest paid employee in that company. THen we can keep inflation in check when everybody can afford basic things, If the bosses can pay for expensive imported goods while the employees can barely afford the bread, they wil never care for the others, pay will increase for the few directors while the employees will struggle just to make ends meet, like now…

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