To Tax or Not to Tax?

A few days ago, I read a proposal by an academician in a seminar to tax EPF. Tax is a very sensitive subject for me being one of the few taxpayers in Malaysia. As it is far easier, in my opinion, mere salary earners like me are often targeted. We have no way and nowhere to run so it is far easier to deduct and impose anything and everything on these salary earners. Because of the various deductions and incentives, corporations often enjoy various benefits in comparison to salary earners.

I am sharing a page on incentives and tax credits from PWC https://taxsummaries.pwc.com/malaysia/corporate/tax-credits-and-incentives#:~:text=Tax%20exemption%20of%2070%25%20of%20statutory%20income%20for%20five%20years,not%20enjoyed%20the%20SBSR%20incentive.

We can see what they can enjoy in comparison to mere salary earners.

https://taxsummaries.pwc.com/malaysia/individual/deductions

https://www.pwc.com/my/en/publications/mtb/personal-income-tax.html

I am a firm supporter of consumption tax. What is consumption tax?

Consumption taxes apply to sales of goods or services. There are three main types of consumption taxes: sales taxes, value-added Taxes (VAT), and excise taxes. While sales taxes and VATs usually apply to a broad set of goods and services, excise taxes are targeted at specific products.

Why do I support consumption tax? It is very simple actually. It is the only way to get every Malaysian to contribute towards nation building instead of just depending on mere salary earners and corporations. In 2015 we implemented the GST (Goods and Services Tax). It was then replaced with SST (Sales and Service Tax). I will not comment on the politically charged interpretations of both, instead I will just make a comparison between the two.

In simple terms, The SST is levied at the consumer end while the GST is paid by all companies. The SST is payable when consuming good while GST is payable on every transaction between companies before reaching the end consumer.

SST vs GST obtained from https://ringgitplus.com/en/blog/personal-finance-news/gst-to-sst-understanding-the-facts-and-figures.html#:~:text=SST%20Revenue%20Will%20Be%20Significantly%20Less%20Than%20GST%20Revenue&text=2%20billion%20and%20RM44%20billion,hit%20RM45%20billion%20for%202017.

This is an article where World Bank commented that GST is better than GST even though it is a regressive tax regime as imposes on consumption. https://www.bernama.com/en/business/news.php?id=2090466

According to World Bank, since it is imposed on consumption, it may inhibit spending a little especially on the lower income group since consumption tax does not discriminate. This topic brought up a lively discussion with some of my friends where I am a firm advocate of consumption tax albeit with some modifications. I believe that such tax should not be imposed on products sold in supermarkets since every income group shops in supermarkets. Such tax should be imposed for other consumer goods especially luxury goods but maybe it doesn't need to be imposed for some shops and establishments, maybe Bata for example since they sell affordable products.

I prefer GST compared to SST as a consumption tax. As mentioned above it is far wider therefore has a higher collection, what's even more important to me is that it tackles the issues of the gray or black economy.

What is gray economy? The gray economy includes any economic activity that is legal, but which is unrecorded and unregulated. These transactions frequently involve arbitrage opportunities where there is a disparity in price points across geographic regions.

And black economy? Black economy is a segment of a country's economic activity that is derived from sources that fall outside of the country's rules and regulations regarding commerce. The activities can be either legal or illegal depending on what goods and/or services are involved.

Therefore, if it is unregulated and or undetected chances are that any income derived will not be taxed. Something I learnt regarding GST is that, at every layer they act as tax agents for the government, thus it allows the Customs to inspect and audit their books at every layer. Thus, opportunities to hide unexplainable income is far tougher. That's why for segments of the society GST is extremely unpopular. This article https://www.biztory.com.my/sst-gst-2-differences-2/ can explain this further? Is there a right or wrong answer? I don't really know. What I do know is that there was a higher collection for GST. And I was glad that everyone shared paying taxes and not just salary earners, it gets lonely out there constantly being targeted for anything and everything.

If we read the articles, it stated that GST reduces disposable income thus it may impede on generating economy, but it improves the nations' coffers. SST improves consumers' disposable income, able to spend a little more but it hits the nations coffers forcing the government to borrow, thus imposing on future generations and it reduces ability to fund development projects that will actually be good for the economy as it puts in large amounts of funds into the economy as people spend.

Who is right? One micro and one macro? I've no idea but removing GST resulted in higher government borrowings. Government expenditure is far tighter, I am part of the government machinery I know exactly how tight it is.

We can call it anything we want GST, SST, VAT, SST plus or we can call it Hairy (haircut, get it?) what is far more important is to broaden the taxable items that will increase government income. The economy greatly needs a boost. Getting corporations to agree to a higher minimum wage or to increase salaries that will be more competitive regionally is like asking them to donate their arms and legs. They will not agree to any form of increase. They are still living in the 80s or 90s. But that's a topic for another time.

Thank you for reading.