Long list of tax exemptions proof Malaysia not ready for GST, says DAP

Malaysia is not ready for the goods and services tax (GST), said DAP, because of the "confusing, cumbersome and costly world's longest list" of classification of products and services subjected to the broad-based consumption tax.

Three days after GST took off amid complaints and confusion among both retailers and consumers, the opposition party’s national publicity secretary Tony Pua said the tax has turned into an inefficient taxation system because of the lengthy exemption on products and services, which he said, was worse than its predecessor, the sales and service tax (SST).

He said instead of boasting about its world's longest list of zero-rated items, Prime Minister Datuk Seri Najib Razak should be embarrassed that the country would soon become the "world's most famous textbook case study on how not to implement the GST”.

"The Barisan Nasional government’s incompetence and unwillingness to listen to dissenting voices opposing the GST implementation leaves Malaysians once again trapped between a hard rock and the deep blue sea," he said in a statement today.

The Petaling Jaya Utara MP said the new tax scheme had caused confusion among manufacturers, sellers and consumers of all types of goods and services.

He said even the most literate of the new tax were often uncertain about the exact classification of products which were either standard-rated, tax exempt or zero-rated.

Under Putrajaya's GST scheme, standard-rated supplies are goods and services that will be levied 6% GST.

Zero-rated are items not subjected to the consumption tax, while tax-exempt are non-taxable items which are not subject to GST at the output stage, that is, when supplied to the consumer.

However, the GST paid on input by the businesses cannot be claimed as tax credit. "You can hear, for example, how the GST experts on radio talk shows get stumped by questions posed by their listeners. Or you can read the various news reports of inconsistent application of GST across the same or similar products between different retail outlets."

Pua said many businesses have yet been able to implement their GST system because of the complications involved in their goods and services, which required extensive reengineering of their work processes. This resulted in higher costs, which many small businesses could not afford.

Citing an example, he said any shop which offered or produced all three types of standard, zero-rated and tax-exempt products effectively had to put in place three sets of sub-accounts.

"Despite clearly knowing the above, the government has proceeded with its self-pronounced longest list of zero-rated and tax-exempt goods and services. It did so purely because they know that the income inequality in Malaysia will not be able to tolerate the regressive nature of the GST system which burdens the poor proportionately more than the rich.

"However, that, in turn, defeats the purpose of implementing the GST in the first place as a more efficient and effective taxation system. Instead, the GST becomes a confusing, cumbersome and costly system to implement."

He agreed on paper, the GST was a more efficient and effective taxation system than the SST and the existing income tax.

However, he said Najib failed to recognise that an efficient GST predicated simplicity and universality of the tax.

This means that the GST is efficient because it charges a single tax rate and it applies to all products.

The outcome under such a system will be a tax that is simple to understand, easy to implement and cheap to administer.

However, Malaysia's long list of exemptions and zero-rated goods and services proved that the country was not ready for the implementation of the GST, said Pua, because of the wide income disparity and a population where more than 80% did not even earn enough to pay income tax.

"The government should have instead addressed and resolved the low income and inequality issue in the country first before switching to a GST system. Had Malaysians achieved a higher income status and lower income inequality, we would not then need to implement a GST system which is riddled with such complication tax exemptions." – April 3, 2015.