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Malaysia GST kicks off after years of delay

New tax regime is seen as necessary to cut dependency on petroleum earnings, diversify revenue sources
Thursday, April 2, 2015 - 05:50

Kuala Lumpur

AND so it has come to pass. After years of resistance and much hand- wringing, Malaysia on Wednesday rolled out a goods & services tax (GST), the new tax regime seen as necessary for the diversification and broadening of revenue collection.

Painful as it likely will be for many, there are cogent arguments for it including Malaysia's still-too-much dependency on petroleum-related earnings, although it has been gradually reduced to about 30 per cent now.

Taxpayers also number too few. Only about 15 per cent of salaried workers and companies pay tax. At the same time, foreign visitors to Kuala Lumpur and its bigger cities often wonder at the conspicuous wealth and consumption as evident by the number of cars on the roads - many flashy and expensive - the ever-growing number of high-end apartments and suburban malls replete with premium luxury outlets.

Few want to talk about the shadow economy but GST will ensure more curbs; as Parti Islam Se-Malaysia (PAS) put it on Tuesday, "Now everyone can pay tax!" Opposition parties including PAS have been against GST, mainly because lower to middle-income earners are already hurting from the high cost of living made worse by a devalued ringgit. Increasingly, letters to the editor raise the issues of "suffocating costs" and being "mugged" by inflation.

February statistics might indicate little change in living costs from a year ago, but not for Joe Public. When global oil prices soared, the cost of everything else rose in tandem. But when oil prices tanked, except for pump prices, little else budged. For instance, milk, an everyday item, costs RM6.50-RM7.00 (S$2.40-S$2.58) a litre.

The median household income however remains abysmal. In 2012 it was only RM3,626 - bottom 40 per cent RM1,852; middle 40 per cent RM4,372; and top 20 per cent RM9,796 - and income growth remains tepid.

A corollary of GST is bound to be greater public scrutiny of how tax monies are spent. Anger and disbelief at the litany of excesses and wastage by government agencies unearthed annually by the Auditor General have already resulted in a trust deficit.

Take 1Azam, a programme aimed at developing entrepreneurs by helping them start small businesses. Parliament's bi-partisan public accounts committee reviewed the scheme last month and found the standard operating procedure was not followed.

Not only were participants not from the target group, some couldn't even be found.

Misgivings have been deepened by the current controversy surrounding 1MDB - the sovereign wealth fund that has racked up RM42 billion of debts in five short years but with little to show for. Its ballooning debts have put even more pressure on the local currency.

Investors already keeping a wary eye on Malaysia would have been further alarmed by the arrest this week of five senior members of The Edge Media Group including its group chief executive Ho Kay Tat - a former BT correspondent - on sedition charges stemming from a report that the Conference of Rulers did not favour the implementation of hudud laws.

Although the report has been denied by the Keeper of the Rulers' Seal - and a police report lodged - many wonder whether the heavy-handed treatment of the executives has anything to do with their media units being at the forefront questioning the wisdom of 1MDB's various investments to date.

The newsmen are only the latest arrests of which there have been more than 100 people in the past weeks. These include lawmakers, opposition members and anti-GST activists.

Now that it has been instituted, GST cannot be simply wished away. But neither can demands for greater transparency over how tax monies are spent.

READ MORE: Top Malaysian fund shuns consumer companies

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