High-earners may punish PH for no-GST plan

By Lim Seng

The opposition coalition’s insistence on abolishing GST (goods and services tax) should it win the coming general election could be both a boon and bane for the rakyat.

The abolition of the GST is favoured mostly by those who earn less — largely those in the B40 (Bottom 40) income category.

Those earning good incomes, especially businessmen and professionals, might not be in favour of doing away with GST, as the new taxation system encourages them to work harder and earn more.

This must be surprising for some but in fact, the GST is a tool to help the government collect tax from consumption and to allow it to reduce income tax. Subsequently, it will motivate the people to work harder because of the lower income tax, thus boosting economic activities.

Should the GST be removed and the sales and services tax (SST) return, for sure the income tax will increase and eventually discourage people from working hard to earn more, as it would result in higher tax payments.

Similarly, those in manufacturing would tend to limit their production to avoid bigger turnover and subsequently a hefty tax payment.

In other words: the harder you work, and the higher your income rises, the more tax you have to pay.

A diversified tax system that relies on income and consumption taxes is superior to one that relies excessively on income tax.

Adli Amirullah, economic and business research coordinator at the Institute for Democracy and Economic Affairs (IDEAS), says that reverting to SST may not guarantee that the prices of goods and services will come down.

He even warns that bringing back SST may increase the prices of goods because of double taxation in the tax regime.

On the other hand, the opposition coalition argues that the estimated deficit of RM25.5 billion (the difference between the estimated total collection of GST for 2018 and the average total SST collection before 2015), if the SST were to be re-implemented, would remain with the people, hence boosting their spending and economic growth.

However, there are economists who argue that the same effect happens through the GST taxation, which is eventually spent on those in the bottom-40% (B40) and middle-40% (M40) categories, through operational and developmental expenses and also cash handouts.

Usually, the money collected via GST will be returned to the people in the B40 and M40 categories, which have a higher propensity to spend.

But without GST, not all of the estimated deficit returned to the people will be spent. Some of the money will definitely be kept as savings, hence hampering economic growth.

Apart from this, businessmen and high-income earners definitely would have experienced the benefits from the switch to GST in 2016 and 2017. It is highly doubtful that these people will support reverting to SST, as mooted by PH.

Although the opposition coalition has announced that an estimated loss of RM25.5 billion caused by reverting to SST would be made up for by fighting corruption, leakages and wastage in the government sector, its feasibility remains to be seen.

Adding to this, the PH has also pledged to impose a limit on land hoarding by developers as this is deemed by them to be the main culprit behind skyrocketing property prices.

Dr Carmelo Ferlito, senior fellow at IDEAS, has said such a move would be a violation of the freedom to dispose of land in the manner the legitimate owners deem to be most appropriate.

By laying down the facts about GST, SST and the limits set to be imposed by PH against property developers, one can easily realise not only how populist the aforementioned measures are but also how they are against the professionals and the people who are heavily involved in businesses like manufacturing, services and real estate.

Another question comes to mind: Will these worries of businessmen and professionals regarding the abolition of the GST and crippling land rules, turn into votes against the PH?

Lim Seng is a FMT reader.

The views expressed by the writer do not necessarily reflect that of FMT.

Click here to get live updates throughout the GE14 season