It’s not surprising that the government has decided to put off the Goods and Services Tax (GST) for now.
While the NGOs might claim preliminary victory (they had planned a protest for Monday, when Parliament resumes) and some might think that the government has listened to the people’s concern, I believe it was the Federation of Malaysian Manufacturer’s objection that probably saved the day.
Five days ago on Tuesday, the FMM’s task force on GST recommended that the tax be deferred until Malaysia was ready (when average income was higher and income disparity lower).
We shouldn’t be too thankful to the FMM though. They very “kindly” suggested that the government consider a Retail Sales Tax instead of a GST – while the corporations continue to enjoy ever-lower tax rates. Gee, thanks!
As this government often puts business interests ahead of people’s, we shoudn’t be surprised that the government is now listening to the FMM. After all, if the government really had the people’s interest at heart, it would not have even contemplated GST – not when the vast majority of Malaysians do not earn enough to be eligible to pay income tax.
Why was the FMM against the idea? For one thing, it would have required a great deal of education, work and expense to prepare their member firms for the new tax regime.
Just last week, I was telling an accountant friend of mine that I don’t think that the government has the machinery and the qualified human resources in place to implement the GST. Neither had it done much ground work. If it had gone full steam ahead with the GST, then there was a great danger that 1Malaysia would be reduced to 1Big Mess with leakages galore.
Moreover, the GST was not going to be politically popular with Umno’s rural base, many of whom would be low-income workers (such as farmers) who would be heaviest hit by the GST.
Most people instinctively know the GST is a regressive tax, especially in the Malaysian context. (Some have dubbed it “Go Squeeze Them”.) This is especially true when you consider that the majority of Malaysians do not currently pay income tax – in which case, the standard methods of mitigating the effect of the GST on the low-income group (i.e. income tax credits and slashing income tax rates for the bottom bands of income) are not available.