GST needed to reduce fiscal deficit, prevent
recession
Goods and Services Tax (GST) is perceived to be the most
devilish of policies implemented by the government this
year which many see as a measure to burden the people
due to the inefficiencies and corrupt practices of the
government. I would concur that our government isn’t
exactly the most efficient government in the world but
the implementation of GST is more important than most
people think.
Why GST?
Sales and Service Tax (SST) was a relatively inefficient
tax system where it was easy to avoid paying taxes
causing a huge outflow for the government. GST is more
efficient as people are taxed on their consumption, the
more they consume, the higher the total amount of taxes
that they will pay. It eliminates the presence of the
cascading effect which reduces business cost for
producers, eliminates double taxation and increases the
competitiveness of exports as exports are not taxed. GST
also helps alleviate the burden of poorer people as
basic necessities are zero-rated. |
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How important GST is to our economy?
Unfortunately people in general do not see the
importance of GST to us at all. It is safe to say that
more than 80% of people do not understand how
indispensable it is to our economy.
Being a very commodity driven, export orientated and oil
reliant economy, Malaysia has been hit hard by the
global fall in commodity prices especially that of oil
which represents a huge proportion of total revenue to
the government. Oil prices went down from an average of
about USD$100 (RM429) per barrel last year to a price
average of about USD$55 per barrel this year according
to the Crude Oil Brent (ICE) index, equivalent to about
a 50% drop in oil revenues.
|
2014 |
% Total
Revenue |
2015 |
% Total
Revenue |
2016 |
% Total
Revenue |
Petroleum Income tax/Royalties
Crude Oil Export Duty |
35,065 |
15.9 |
14,848 |
6.7 |
13,400 |
5.9 |
Petronas Dividends |
29,000 |
13.1 |
26,000 |
11.7 |
16,000 |
7.1 |
Total |
64,065 |
29.0 |
40,848 |
18.4 |
29,400 |
13.0 |
Figures are in
millions of ringgit(RM'000,000)
Source: Ministry of
Finance, BofA Merill Lynch Global Research
|
2014
|
% Total
Revenue |
2015 |
% Total
Revenue |
2016 |
% Total
Revenue |
Sales and
Services Tax |
17,216 |
7.8 |
7635 |
3.5 |
0 |
0 |
GST |
0 |
0 |
27,000 |
12.1 |
39,000 |
0 |
Total |
17,216 |
7.8 |
34,365 |
15.6 |
39,000 |
13.0 |
Figures are in
millions of ringgit(RM'000,000)
Source: Ministry of
Finance, BofA Merill Lynch Global Research
As we can see from the tables above, Malaysia is going
through an enormous loss of revenue by the plunge in oil
prices and this huge loss can be offset by the extra
revenue gained by GST. This is especially so as in 2016,
Petronas will cut dividends by RM10 billion. This
warrants the confidence of the government for us to
achieve a fiscal deficit target of 3.1% of GDP.
What happens if we do not implement GST?
If we do not implement GST, based on the current state
of the economy, our fiscal deficit level as a percentage
of GDP will hit almost 5% this year and a prospect of a
downgrade of our credit ratings will be possible.
What will happen if we do not reach our target fiscal
deficit level to GDP ratio?
Fiscal deficit is defined as the total spending in
excess of total revenues. If we do not reach our target
fiscal deficit level, or if fiscal deficit increases on
a yearly basis, we might risk getting our credit ratings
cut. Getting our credit ratings cut will have serious
implications on our economy. With a lower credit rating,
it would be difficult for the country to borrow money to
expand its economy. Furthermore credit ratings cuts are
usually followed by severe austerity measures. Equity
and capital markets will fall and the economy will most
likely go into deep recession.
Conclusion
It is very easy to jump on the bandwagon and accuse the
government of implementing GST as an easy way out of the
mess that they created, especially if people do not
understand why it is implemented in the first place.
Economics might be intricate to some and some policies
might not be feasible to implement but the GST is
definitely not one of those policies. The government
needs to make people understand the positive effects of
GST on the economy. Just saying how much it will help is
futile as people need to know how the GST mechanism
actually works.
Source:
Free Malaysia Today, dated 23/11/2015. |