Malaysian Economics: Public Sector

 1. My opinion with regards of Malaysian tax revenue

    GST refers to the Goods and Services Tax that has been implemented in Malaysia for 4 years roughly.  However, in Malaysia, the implementation of GST is considered as a failure since the implementation was ill-timed.  It known as the regressive tax because it takes a larger share of wages from lower-earner households than from higher earners.  Most Malaysians are considered as middle- and low-income earner.  However, GST hit M40 group the hardest than B40, considering the government provide financial aid to the B40 consistently like Bantuan Rakyat 1Malaysia (BR1M).  Hence, they are against it since they were not earning enough and did not receive any help from the government.  Hence, we can say the salient point of its removal is because Malaysian’s economy was not stable.  In other words, the minimum wage was not sufficient to bear their cost of living, imposing them to a heavy financial strain for paying the extra tax. 

    Next, on April first, 2015, GST regime was introduced.  It was a year after the price of crude oil started to drop.  At this time, most of the revenue came from the oil we mined (PETRONAS).  Thus, our government really depends on it.  Falling the crude oil’s price indicates decrease of government spending especially on subsidies and price restrictions on certain goods.  Usually, when the price of oil decrease, the consumer goods will also decrease.  However, this time it happened the other way round, leading inflation to rise.  Not to mention, the ringgit weakness also reduced public’s purchasing power, making the GST hard to win people’s heart at that time.

    According to Minister of Finance, the failure of the GST also due to the corruption from those who in-charge in the departments.  Indeed, GST is the best tax system that can be implemented to boost economic growth.  Most of the developed countries like Singapore and United Kingdom has implemented GST to their country.  By using tax revenue from the GST, they manage to “give it back” to its people by providing the better standard of living to its people through education sector, health care services, public goods and others. Slovenia is one of the countries that give free education for EU citizens through the implementation of GST.  GST (VAT) rate in Slovenia is the higher than most of other countries, at 22%.  Germany also offered free education for its citizen with 19% of GST.  Thus, through GST, citizens will expect the great benefits that come with it.  However, according to Malaysia Kini (2017), The amount when SST has used was about RM16 billion.  While, RM42 billion was the amount that must be expected from the GST implementation.  Another RM26 billion remain questionable.  If the government maximise the spending of the revenue in the market, the purchasing power of people will rise, driving the consumption rate up or it may stay the same.  Unfortunately, it does not happen in Malaysia.  The purchasing power reduced as the buying and selling activity became slow.  The distribution of resources has been a point of controversy for the majority of Malaysians.  Although, in the previous budget stated there were cuts in distribution to certain sectors like education and health care services, it is not equivalent to the RM59 billion that has been allocated to boost the United State economy. RM59 billion is equal to a year and a half months of GST collection and it is a lot to improve our quality of life since tax is meant to help our national economy.  With better governance, the government may use the tax collection to boost our economy instead of other country.  This led to the protest of GST implementation from the citizen since they did not receive what they should get. To avoid this situation, the government should be transparent by declare the tax revenue and their spending annually.  By this way, the issue of corruption involving GST would not arise.

    Then, the implementation seems unprepared, making the enforcement of GST quite hasty.  Theoretically, the rate of GST which is 6.0% is supposed to apply only to the end-user. The implementation of GST would never be a burden to the company.  If their company are registered, they are allowed to claim the input tax from the government.  Hence, in the supply chain, there was no doubled 6 percent cascaded tax rate on each stage.  Generally, there are several exceptions, namely exempt supplies.   Nonetheless, there have been allegations or accusations from the customers that certain seller had increased more than 6% of the prices on certain products, which could be the impact of reckless implementation by profit-seeking enterprises.  It is impossible for the government to monitor the price of products in all Malaysia market due to its hasty execution. Not to mention, many unfortunate small businesses that forced them to shut down their business.  Without the proper plan and aids given to them, GST regime would be a huge problem to the economic growth if it still be implemented in Malaysia.

In conclusion, GST is the best tax system to be implemented, but it has to come along with a good governance with a proper plan. Abolishing GST and implement a new kind of tax that affects the elites, such as based on their capital gain, tax on stock transactions or even the wealth tax seems more sensible for the government to help the working-class people for better life.  If the government wants to reimplement GST, they should lower the rate from 6% to 3% and by excluding basic goods, investment sector, and health sector from GST for the first stage to spot the weakness.