By Sufiyan Abas
We welcome the opposition’s manifesto presented last night. Now, I would like to zoom in on their offer to abolish the goods and services tax (GST). If we care to read the long version of the manifesto, under Promise 1 page 16, they plan to abolish the GST but revert to the sales and service tax (SST) system. So consumption tax will still be retained.
Is this the right move? What exactly is the difference between GST and SST? Aren’t we all just paying tax either way?
The push to abolish GST came from the perception that it increases the price of goods and services as we must pay an additional 6% on our purchase price. However, little do we realise that before GST, we had been paying consumption tax under the SST regime. SST was just hidden, GST is not. The change from SST to GST in 2015 was just a change in tax system.
The question is, do the rakyat still need to pay tax if we abolish the GST? The short answer is yes. In fact, prices might even increase.
See the example below:
The old SST system is a tax on accumulated cost. SST is already imposed on the first RM (cocoa supply). Later in the supply chain, SST charges tax on the cumulative cost of RM2 (by the time chocolate is made in the factory).
This means that SST has taxed the first RM (cocoa supply stage) twice! By the time the chocolate is sold at a shop, SST has been charged on the first RM thrice (cocoa), and the second RM (manufacturer) twice. This is what we call the “cascading effect”, which proves that the SST is a flawed tax system.
On the other hand, the GST makes sure we do not get taxed more than once. Under the GST system, a single 6% tax is levied at every level of production. It is applied equally throughout the supply chain’s value add – to the supplier, manufacturer and retailer.
Should we go back to the SST?
Moving back to the SST would be like reversing our progress at a time when more than 160 countries around the world have turned to the GST system. Why did they do so? Because there is consensus among economists and international organisations that the GST has no cascading effect, and is more transparent and regulated. Moving to SST from GST is like reverting from a round wheel to a square one.
A standard 6% tax will be implemented from supplier to consumer, rather than the SST where pricing of the product can be changed and determined by the manufacturer because they are the only ones who get taxed. There were common cases where manufacturers did not disclose their SST rate and pocketed the so-called “taxes” collected from consumers.
When we look at it objectively, GST is the way forward. Many today are against the GST because it appears on our bills, reminding us that we are paying tax. Under the SST system, sellers are not required to state the tax. But while that may appease some, we are paying tax all the same.
Some would then ask, if the SST makes goods more expensive, how is it that prices of goods were cheaper before GST when they were under SST?
There can be two answers to this, the first and most notorious being profiteering. Middle men have taken advantage of GST to inflate prices and shift the blame towards the tax. The second reason is, GST is just more efficient at collecting taxes as it is governed by a robust system.
At the end of the day, no one likes paying tax. But abolishing GST does not mean abolishing tax. GST will merely be replaced by SST. If they really want to abolish consumption tax, it would be better to retain GST but zero-rate it, then to mislead the people by replacing it with SST.
The opposition needs to be honest with the people. Surely they are aware of the flaws in the SST system. So do they really believe in this system or are they abolishing GST (to replace it with SST) purely to fish for votes?
There are two takeaway points. First, GST will be abolished only for SST to be reintroduced, hence consumption tax is here to stay. Second, SST is flawed and resurrecting it would be an irresponsible thing to do. The policies crafted for our country must be #ForwardLooking. Not backward. That is why it is imperative to have a #ForwardTogether mindset for the sake of our future.
Sufiyan Abas is an accountant and vice-president of the Organisation for National Empowerment (ONE).
The views expressed are those of the author and do not necessarily reflect those of FMT.