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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“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’… Read more »
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… Read more »
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… Read more »
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!
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… Read more »
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… Read more »
Right now, the poor may not pay income tax, but they still pay indirect taxes just like everyone else.
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.
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… Read more »
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… Read more »
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… Read more »
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… Read more »
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… Read more »
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..
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… Read more »