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GST will lower prices?

March 12, 2010
GST to lower prices? We think not
Aidila Razak & Goh Seng Ching
Mar 12, 10
9:47am
Representatives of stakeholder groups slammed a think-tank’s claims that prices will drop with the implementation of the goods and services tax (GST) during roundtable discussion in Petaling Jaya yesterday.

The victim was Wan Fazdrul Wan Baharum of the Institute of Democracy and Economic Affairs (Ideas), who insisted that prices will fall by 2.79 percent as soon as the tax is implemented.

He said that this is because the proposed GST rate of 4 percent is lower than the current sales and service tax (SST), set at 10 to 15 percent.

The discussion, organised by the Selangor government, was attended by 35 representatives of consumer groups, trade organisations, workers’ unions, think tanks as well as academics and members of parliament.

gst 110310 k jeyapalanFirst to shoot down the idea was deputy head of Monash University School of Business, K Jeyapalan, who said that a one-off inflation is inevitable.

“Certain prices will fall, and certain prices will increase, but all countries that have implemented GST recorded a one-off price rise in the first year,” said Jeyapalan(left), who has written several research papers on the topic.

He added that the GST is also likely to burden small and medium enterprises (SMEs), that will need to comply with the administratively cumbersome procedures.

“I conducted a survey eight years ago, which shows the compliance cost for income taxes by SMEs is four times greater than for public listed companies. I expect it to be even more with GST,” he said.

Double whammy for SMEs

Jeyapalan also agreed with chairperson and Klang parliamentarian Charles Santiago’s suggestion that the GST will be a “double whammy” for SMEs, which make up 97 percent of the country’s industry.

factory workers sweatshops 090107 clothing“Some SMEs will find that they cannot pass on the compliance cost to the consumers, and will have to absorb this,” Santiago said.

Most participants also agreed that the shift from SST to GST would shift the burden from the rich to the poor, as the latter aspend a greater proportion of their income.

Previously, the federal government has also said that it will reduce corporate and individual income tax in concert with GST implementation.

While basic goods may be protected from GST, the poor also consume other types of goods, said Jaringan Rakyat Tertindas (Jerit) co-ordinator S Arutchelvan,

“What about chocolate? Do the poor not eat chocolate?” he asked.

In agreement, Wawasan University Deputy vice-chancellor UK Menon suggested a rebate system for those whose incomes fall under a certain threshold.

“Perhaps the poor can bring their receipts to the post office and get instant refunds for the GST paid,” he said.

GST won’t solve deficit problem

Meanwhile, Malaysian Trade Union Congress (MTUC) president Syed Shahir Mohamud told participants that there were prerequisites that must be addressed before the government can implement GST, such as enacting a minimum wage policy.

“In the past they argued that by removing petrol subsidy they can improve public transport and solve the congestion issue particularly in the Klang Valley, but things have gotten worse,” he said, explaining why workers are wary of yet another tax.

While the implementation of GST in other countries has led to better welfare services, some argued that this may not be the case in Malaysia.

“Did the government say (that they will use GST to improve welfare)? We don’t know what their plan is,” said Santiago, also highlighting a lack of awareness on the matter.

There was also concern that the GST rate may likely rise in future to fund government expenditure and address the deficit.

“It’s important to implement the GST because we have been facing a deficit budget for 14 consecutive years,” said Malaysian Institute of Economic Research (MIER) executive director Zakariah Abdul Rashid.

putrajaya prime minister office 030408However, most participants agreed that the public finance crisis is most likely due to corruption, leakages and wasteful projects, and cannot be solved by charging extra tax.

“The deficit will not be resolved if mega projects still take place,” Santiago said.

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