masterwordsmith-unplugged

Of late, there are myths or fallacies about the GST disseminated via the MSM and of late at THIS LINK and OVER HERE. During such times, we all need to put on our thinking caps to see beyond the smokescreens, myths and fairy tales about the GST that have been mushrooming in various places.



At THIS LINK, the following claims were made:

1. Corporate and income tax will be gradually reduced, once the proposed goods and services tax (GST) is in place by mid-2011, said Deputy Finance Minister Datuk Chor Chee Heung. “This is long term objective of the government. Once the GST come into play, it will be a broad-based tax.

There is no evidence to prove that a reduction of corporate tax can attract investors. At the height of Penang's development in the 1970's and 1980s, corporate tax was at 40% and investors and FDI were still pouring into the state then. In 1988 it was 40% and now it is at 26% but there has been no increase in the country's FDI and the reverse exists! Vietnam currently has a corporate tax of 40% and has a huge inflow of FDI. The question we should ask ourselves is why investors are NOT coming to our country! The government should address that problem instead of implementing GST.

Organizations such as FMM have been the strongest objectors to the GST and why?

Firstly, it creates a gigantic bureaucracy in the government if they impose the GST because they would have to deal with claims from manufacturers and we all know how difficult it is to get refunds from our government.

Secondly, at the moment 20 000 companies pay the Sales and Service Tax but with the implementation of GST, more than 200 000 companies will have to pay GST. The government department concerned will have to deal with refunds at every stage of production. Can they cope with that bearing in mind the efficiency of the civil service?

Thirdly, how sure can they be that all claims are legitimate? Accounting fraud has always been a problem so one could make a claim, take the money and abscond. If there is no proper checking system, how can we be assured of competency in services? If there are losses, the companies concerned will have to bear the brunt of such incidents and the cost will be passed on to consumers in terms of higher prices!

Fourthly, exporters and businessmen would rather continue paying the current 10% sales and service tax than to worry about cash flow problems when they cannot get refunds under the proposed GST system which theoretically benefits them!

Fifthly, only about 15% of the population pay income tax but with the GST, even the remaining 85% (who previously never paid any taxes at all) will have to pay GST!

2. Chor also disclosed that businesses related to government services such as food and transport, are exempted from the GST.

Apparently, 40 basic goods are going to be exempted from GST. This is a fallacy.

WHY?

Assuming that rice is exempted from GST, the government did not tell us that all the production inputs for the production of rice such as fertilizers, seeds etc are not exempted from GST which means that factor costs will go up which also means that the price of rice will increase.

So what is the big deal then if it is exempted from GST?

The hard truth is that at the end of the day, the rakyat will still suffer from higher prices!!!

3. The deputy minister also gave an assurance that the cost of living and lifestyle of the people would not increase or be affected despite the GST implementation.

My former economics students would be able to regurgitate the definition of inflation which is a sustained increase in the general level of prices of goods and services over a period of time. There are basically two main types of inflation - demand pull and cost-push inflation.

With the implementation of GST, we will see the cost of products increasing and the cost of running business increasing as well. Such increases in factor costs not matched by an increase in output will surely lead to cost-push inflation!

The government has not told us how much it will cost to implement the GST system for them and for individual businesses. We have to change the software, computing systems, etc all of which will increase costs and cause inconvenience.

Most definitely, the cost of living and lifestyle of the people will increase and will be affected by the GST implementation.

4. “The GST at four per cent is considered very low,” he explained.

The government has not disclosed how they arrived at the 4% figure. Records of other countries have shown that once GST is implemented, it will be the same for the first one or two years after which the rate will increase. How sure are we that our government will keep this 4% at a fixed rate with no changes?

It is clear that the implementation of the GST nicknamed Gasak Sampai Teruk (according to Dr. Dzulkifly) is mathematically and morally wrong because of so many reasons!

5. Meanwhile, the Finance Ministry’s Tax Review Panel Chairman, Datuk Kamariah Hussain said there would be revenue gains of about RM1.0 billion, with the GST implementation.

So far, they have not told us how much it will cost to implement the GST. According to En. Mohd. Rafizi Ramli (CEO of Selangor Economic Advisory Office), implementation can cost up to RM5billion.

Now does it make sense to you that the government spends RM5billion to collect RM 1.0 billion???

Why are they so intent, so desperate to push this through? Think.

7. “With the GST, the government would have a better mix of revenue, and not be too dependent on income tax and petroleum income,” she added.

Let's face it. Oil revenue and its profits did not reach the rakyat. The RM270 million(should read BILLION as rightly pointed out by Semuanya Ok kot) profit of Petronas over the last five years did not increase the productivity of the rakyat and our economy has been in deficit for the last 12 years since 1998! If the government had been prudent, those profits would have elevated the standard of living in this country and made us more knowledge-based and more competitive to attract more FDI but the reverse has happened. Why? And now, they want to rectify if by imposing the GST on us. The audacity of it all!!!

So how was the money spent?

...on submarines that cannot dive
...on naval ships that cannot sail
...on jets that cannot fly because their engines are missing
..on losses from leakages of RM28billion leakages in government spending according to the recent Auditor-General's report
..and the madness goes on and on...

8. Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah has indicated that while the GST would replace the existing sales and services taxes, it would not put pressure on prices and to ease the burden of consumers, staple foods such as rice, sugar, cooking oil and flour would be exempted from it.

I have already debunked this myth as in point no 2 and 3.

The hard truth is that the implementation of GST will not make our lives better. That is a myth and a fairy tale that will NOT end happily ever after.

In another post, I will be explaining what the government could actually do instead of GST. In the mean time, each and every one of us MUST raise our objections to the GST which is a regressive tax that will severely impact those in the lower income group negatively.

Do leave a comment if you wish to air your views. Thanks! Have a great day!