IT is now 17 months since the Goods and Services Tax (GST) was implemented. How has the new tax system benefitted the rakyat?
When it was first announced in April 2015, almost all Malaysians protested against the GST system as they were afraid that it will further burden the rakyat which is already saddled with the high cost of living and they are afraid that the GST will make things worse.
However, we all now know that fears of the GST impacting the economy and the rakyat were largely unfounded.
This is because despite the many disadvantages, the GST also has its benefits. Here are some of them.
The GST can lower personal income tax
When it was first announced by Prime Minister Datuk Seri Najib Razak in late 2014, one of the advantages of the GST is that the GST can lower personal income tax.
This is because the GST is a wide-based tax collection which will ensure all businesses in Malaysia pay their GST.
With a target of RM40 billion GST collection this year and RM50 billion next year, the government would be able to collect more tax income.
Now that the government is able to collect more tax, Malaysians could see lower income tax in the next few years.
Let us wait and see what the Prime Minister has to offer when he tables Budget 2017 in Parliament on October 22.
The GST can help the government pay BR1M
The government recognises that some of the people are in need of help and that is why it introduced the Bantuan Rakyat 1Malaysia or BR1M.
The government will not be able to pay BR1M if it does not have an efficient tax system.
The sales and service tax system (SST) was not efficient because not all businesses which collects SST pays it back to the government.
As a result, the government is bleeding money.
With the GST, no companies can escape and now that the government is able to collect GST, it can have some extra money.
And this money can be channeled back to the rakyat by distributing the BR1M.
The GST has saved us from the lower oil prices
Many did not expect that oil prices would crash to what it is now at US$40 per barrel from over US$100 per barrel two years ago.
Yes it is true that the rakyat will save as they are able to buy cheaper oil.
But for Petronas, it will have lesser profit and with lesser profit, it cannot pay the government with higher oil royalty.
With lower oil royalty, the government would not be able to spend for the rakyat on various infrastructure projects.
It could be said that the GST has saved the country because if it had not been for the GST, the country’s income would have been lesser that what it is now.
Economists said due to the oil price crash, Malaysia had lost RM10 billion in income. But with the GST, the government is expected to collect RM40 billion by year end and this will help to stabilise the economy.
The GST provides overall economic stability
Sunway Univeristy Business School Professor of Economics Dr Yeah Kim Leng said that the GST overall provides economic stability as it ensures that the government has a more efficient tax system to replace the sales and service tax system.
With a stable tax system, the country’s economy can also be steady because the government has some income.
Speaking to this writer, through the GST, the government is expected to collect RM40 billion by year end.
With RM40 billion in hand, the economy will be stable as the government is able to spend for the public.
This includes infrastructure projects such as schools, roads, public houses, education, medicine and others which will all spur the economy.
Without the GST, the government cannot spend on all of these projects and the rakyat in turn cannot benefit.
GST can provide jobs for the rakyat
GST is a new tax system which can provide jobs to the rakyat as it will attract international investors to come to Malaysia.
This is because when the economy is stable, ratings agencies such as Fitch Ratings and Standard and Poors will rate Malaysia as a stable country.
When Malaysia is stable, foreign companies such as Ikea and Toyota will come to Malaysia to set up their factories and this will provide jobs for the rakyat.
GST will give birth to new economic activities
Part of the reason of why GST was introduced is because the government cannot rely on Petronas oil royalty forever.
The government knows that it cannot pay subsidies to the rakyat for long periods of time and it has to find other sources of income.
By trimming subsidies, international companies will come to Malaysia because foreign companies do not like subsidies because they think that subsidies is not fair and will not make a worker work hard.
By not relying on Petronas subsidy, the government will have to find other economic activities such as on-line business, homegrown information technology business or innovative manufacturing.
All these new economic activities will require workers such as IT systems engineer, web designer or marketing executives and Malaysians can fill up all of these positions.
GST can boost exports
It is proven that GST has been a blessing and one of its benefits is that it can help boost Malaysia’s exports performance and with better exports this would mean better earnings for companies.
As an example, the Times of India reported on August 28, that the US is bullish on expanding economic ties with India, of which bilateral trade has reached US$109 billion and it will get a further boost from new reforms including GST.
Malaysia can be like India too benefitting from the GST as Malaysia is already one of the world’s top 20 trading nations and with GST, its trade relations all over the world can improve.
With better earnings for companies, this could mean higher salaries for the the rakyat, higher bonuses and a lot more overtime and ultimately better income. With better income, the rakyat can spend more and by spending, they will help support the local economy.
Alex Malley chief executive of CPA Australia told the New Straits Times on August 16, that the GST is raising much needed money to enable the government to address the needs of Malaysia and its people for both now and in the future. Malley said overall the GST implementation has been well managed, is generating important revenues and is a success story Malaysia can be rightly proud of.
Nik Haikal Nik Ibrahim is an independent analyst and Malaysian Access reader. Article written is strictly his personal view. Malaysian Access does not necessarily endorse the opinions given by any third party content provider.