Economist: An ageing nation needs GST

Economist Firdaos Rosli says the 6% GST should not have been abolished but its rate reduced and exemption list tweaked.

KUALA LUMPUR: An economist has criticised the government as being short sighted in its decision to scrap the goods and services tax (GST), saying it has apparently failed to consider the reduction in income tax collection as the Malaysian population gets older.

Speaking to FMT, Firdaos Rosli of the Institute of Strategic and International Studies (Isis) noted government statistics showing that the proportion of elderly Malaysians has been steadily increasing, from 5.4% of the population in 1970 to 8% in 2010.

According to the statistics, the elderly will make up 23.6% of the population by 2050.

“The government cannot generate revenue from retirees,” Firdaos said. “That is why the GST was important in collecting revenue from a broad group of people.

“The sales and services tax (SST) is inherently weak in collecting taxes because it has a narrow base and a lot of room for tax evasion.”

He said the 6% GST should not have been abolished but its rate reduced and exemption list tweaked.

He also disagreed with the government’s plan to eventually abolish the 1 Malaysia People’s Aid (BR1M), saying it should be allowed to remain as the only cash transfer aid.

“If we abolish BR1M and boost other subsidies like fuel subsidies, this will be a worse option of helping the poor because blanket subsidies benefit even those who don’t need it,” he said.

He cited research showing that recipients of cash transfers purchase goods that help them become more productive. These would include food to keep them healthy, he added.

However, he said the continuation of BR1M must come with the abolition of all other cash aid so there wouldn’t be any overlap.

“If we have only one form of cash aid, we can evaluate its effectiveness and set targets,” he said. “If we have multiple cash aids like we do now, it is difficult to determine how the money is used and how effective the different forms of aids are.”

Prime Minister Mahathir Mohamad is on record as saying that BR1M made people dependent on the government, but Firdaos said there would always be pockets of people needing help.

“The aid mechanism can always be improved upon to prevent abuse,” he added.