- Income taxes are incurred, irrespective of whether that income is spent which means savers are penalised
- Income taxes don't account for inherited or accumulated wealth which consumption tax does
- A consumption tax also hits those in the shadow economy, who wouldn't normally be captured under an income tax or never bothered to report their income. While this will include small traders and hawkers
- GST is more 'efficient' than the current sales tax because it only taxes value added and not gross value sales. This is hugely important for businesses as it should reduce their input costs
- For the government, the burden and cost of collection is shifted to companies which have an incentive to make the system work
It should be remembered that Malaysia has very narrow tax base less than 20% of the population have income levels sufficiently high for them to be taxed and only about 10% actually have to (after deducting allowances, rebates and deductions). The income tax rate would have to be lifted fairly high to match what a GST would yield. Moreover, personal income tax is just 10% of the government revenue base and corporate tax is about 23%. Based on Pemandu's estimates, it looks like GST will yield twice more than the current SST (Social Security Tax) but at a 3% lower than tax rate.
Malaysia currently levies 2 forms of consumption tax - sales tax and service tax. Service tax is levied on all goods sold or produced in Malaysia with the exception of petroleum and exports. The current standard rate is 10% but lower rate of 5% is applicable to fruits, certain foodstuffs, timber, building materials, cigarettes and tobacco, liquor and alcohol.
However service tax is applicable to restaurants, hotels, parking lots, golf courses, clubs, phone companies, professional services like accountants, lawyer and consultants and many more at 6%. Credit cards are also subject a service tax flat fee levied on principal and supplementary cards.
GST is going to replace both these 2 taxes (with possible exception of credit cards) and from which certain essential goods will continue to be excluded.
Idzwan Idris
Pergerakan Pemuda UMNO Bahagian Setiawangsa
WIlayah Persekutuan