Raise taxes on super-rich instead of imposing GST

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While quite a few developed nations have their highest income tax rate at around 40-50 per cent, Malaysia has been steadily reducing its income tax and corporate tax rates. No wonder we have been posting persistent fiscal deficits.

malaysia-personal-income-tax-rate

malaysia-corporate-tax-rate

Aggravating the situation are the following:

  • bloated government spending budgets,
  • opaque nature of government procurement/tenders at inflated prices
  • privatisation of profitable government agencies and revenue generating assets
  • sale of public assets at questionable valuations
  • the opaque nature of government procurement
  • lopsided concession agreements (e.g. IPPs and gas subsidies)
  • unjustifiable mega projects
  • tax loopholes and tax havens (Do we really need a Labuan tax haven?)
  • corruption and leakages and
  • illicit and unaccounted outflows of funds

If all these are controlled and checked, there would be absolutely no need for GST, don’t you think?

Now, even the International Monetary Fund, which has promoted neoliberal policies in the past, concedes that income taxes for the super rich should be raised to help narrow fiscal deficits and reduce debt.

According to a report in The Guardian:

First, (the IMF) supports the idea of a financial activities tax, which would be levied on the wages and profits of financial institutions. This would be the equivalent of levying VAT on financial services, which are currently exempt. It is the fund’s alternative to the financial transaction tax.

Second, the IMF thinks it is time to do something about an international tax system that allows companies such as Google and Starbucks to pay little corporate tax. The fund says they can do this because the global tax order is mind-bogglingly complex and outdated. Instead of a race to the bottom where countries compete with each other to offer the lowest rate of corporate tax, it urges co-operation. This is not going to be easy, as the fund freely admits, but it adds: “The chance to review international tax architecture seems to come around about once a century; the fundamental issues should not be ducked.”

Finally, the fund comes out in favour of having a long hard look at whether those on the highest incomes should pay more. In some countries, the US in particular, the IMF research suggests the rich are substantially under-taxed.

But instead of imposing taxes on the super-rich and raising Real Property Gains Tax and checking bank lending to curb land speculation, the Malaysian government wants to impose a new tax on consumption, the Goods and Services Tax, which will shift the burden of taxation to the masses. The billionaires and the cronies will be laughing all the way to the bank.

Is the GST a regressive tax that will disproportionately burden the poor? Well, without exemptions for a range of basic food items, GST will be highly regressive, considering that many in the lower income group are presently below the threshold for income tax. But if food is exempted as the government says it will, GST could still be regressive but perhaps less so. Much also depends on the range of food items exempted, the level of spending of the lower-income group and the effect of the inflationary and profiteering cycle when GST is introduced. While sales tax and other indirect taxes may be removed, the savings are unlikely to be passed on to the consumer. (Remember what happened when the price of petrol was reduced in 2008?) And in future years when the GST rate is gradually raised, the burden on the poor will increase.

And if income and corporate tax rates continue to drop, then surely the gap between the rich and the poor will grow.

Really, at this point, there is no need for the GST when our income tax system lets many of the super-rich off so easily and when so many Malaysians fall below the income threshold of income tax.

As for what you think, in an online poll conducted on this blog on 16 December 2009, 89 per cent of 779 respondents were NOT in favour of the GST. So who is in favour? I suspect it is largely the corporate class and the well-off i.e. those whose surplus of income over expenditure is invested in assets and speculation (no GST there!) rather than consumption.

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Saheba

Currently it is 26% income tax on those earning RM100,0001 and above. A new category that taxes 28% (an additional 2%) on those earning RM200,000 and above can reign in substantial funds. But GST on luxury items and goods is a necessary step too. Efforts should be made to ensure basic necessities are exempted from GST while the govt drastically cut their expenses at the same time.

semuanya OK kot

1. The bloated government expenses can be cut down by tackling corruption, nepotism, discrimination, incompetence, inefficiency, waste, dereliction of duty and stupidity. Pay rises across the board effectively discriminate against those who work well. 2. Only then should we be focusing on increasing government income. The obvious priority is businesses that cheat. This includes those that (a) operate illegally for decades (b) employ illegal immigrants (c) do not pay worker benefits such as EPF and medical (d) increase government expenses such as hospitals (by pollution and dangerous work) and roads (by overloading vehicles). The quickest way to tackle this is… Read more »

robertan

‘We’ can protest till thy kingdom come but in the Land of the Blind the One-eyed Pirate is king. There is not much that can be done except to wait for the day when the blind chooses to see.

Wee Chin

The super-rich should include those hawkers (many are ori-maestros) charging exorbitant prices with big profit margin but pay little tax.

Penangkia

I agree with you. A lot of Ah Longs, hawkers, road side burger stalls, politicians and cronies either never pay or pay very little tax. GST is one way of making them pay their dues by taxing them when they spend. Reducing the income tax on the rich wont affect further enriching the cronies, afterall they never pay tax or they already transferred their ill rotten gain overseas. Those who benefit from GST plus reducing income tax are those who have been paying their taxes.

Yang

With these this of govt many in fact tried to avoid paying taxes

bigjoe99

The issue with imposing income tax for the rich has to do with attracting investments, Asian economies are too dependent on investments. Raising taxes drives away the rich AND investments. Even if multinationals form the bulk of the foreign investments, wealthy individuals are required to create maximum spin off and heavy risk taking in order to benefit the investments for jobs and multiplier effect. Because our local business do not have much proprietary technology and global competitiveness, they move easily depending on tax rates. In particular, those for exports by local businessmen can be easily moved – not just a… Read more »

najib manaukau

Who really are the super rich are we looking at ? Also who are the contributors to Umno war chest and you don’t bite the hands that feed you ?

Kaycee

In theory GST is good for the country but but knowing Malaysia with its poor enforcement & accountability its going to hit the middle & lower income people meaning mainly the mak cik & pak cik very hard. Exempting basic goods eg. rich & bread from GST may not be enough since both poor & rich are equally impacted. The only people to gain are the umno people in power, the corrupted and the other rich class. Interesting time!

Yang

53 tahun saya tipu you orang. Sekarang saya tipu lagi satu kali dan juga you undi saya. You bodoh tak ingat baik baik. Mana ada free dalam dunia itu. Saya kasi you Brim 2×500 dan juga you undi saya. Erti nya you bodoh orang setuju saya angkat balik 20 kali. hahaha Lain kali say boleh kasi you Brim 5000 juga tetapi saya mesti angkat balik 100k. hahahahahah You orang tak tahu saya siapa….

Yang

Free Malaysia Today
Najib talks about further subsidy cuts

hahaha saya sudah cakap you betul bodoh. Sekarang saya Ah Cheap mahu naik GST dan potong lagi subsidi. Semua you bodoh setuju untuk sedikit manis Brim2x500.

sunnyooi

Its not who you tax. Its what you do with it that matters.

looes74

It’s really a number game. While I truly support Anil’s notion of raising income tax for super rich. Actually focussing on taxing super rich while giving rebates to startups or companies who actually contributes to the economy….

Anwar GM

GST only for lifestyle and luxury products. Daily essentials are exempted. GST is the tax for super-rich.

OWC

Here are some relevant comments on this issue that I have gathered from internet chat: Cut wastage, eliminate corruption, stop all unproductive projects, stop inflation so that the poor can be helped in these difficult days. To balance the coming annual budget, to have a surplus, recover the amounts running into many billions like the USD44 billion, the CM of Sarawak and others who have accumulated huge sums at the expense of public funds. Freeze bonuses to the loss-making GLCs… Cut the seriously bloated civil service and the huge number of people working in the PM department, reduce the in-proportionate… Read more »

Lakia

Idris Jala … thinks he has some smart ideas.

Tigerz

Its not as easy as that. Although I understand why you are proposing this. People are very mobile nowadays and the world is their oyster. The French government is trying to take this populist route as well of taxing the super rich. http://www.telegraph.co.uk/finance/10390571/france-hollande-taxes-socialist-farrage.html You can see that even Singapore has some of the lowest personal income tax and corporate tax in the region. The main issue is the government has to reign in their spending and inefficiencies. And we have to work towards a high income nation. My prediction is the government will announce GST , subsidy cuts and then… Read more »