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The election promise Malaysia's re-generated Doctor PM Mahathir should break

Editorial Staff

There are few things about Malaysia's Najib government that have caused as much anger amongst the populace as the introduction of the Goods and Services Tax ("GST") which is, in fact, a form of Value Added Tax. It was an election promise that Mahathir's coalition would repeal it and reinstate the old Sales Tax. Even during a press conference yesterday, before he was sworn in, Mahathir was asked to confirm that the promise would be kept and he did. Popular though such a policy would be, it is a horribly retrograde step that will cost the country, and businesses, dear. He should revise GST, which was not, in some detail, properly thought through, but he should not reverse its imposition.

Malaysia's GST, as a Value Added Tax, was a major shift from Sales Tax, the previous form of consumption tax. Its imposition caused a major headache for many businesses - and there were reports of long established businesses shutting up shop rather than handle the paperwork that goes with it. There were also many reports of price-hikes due to the tax. These were largely false - there were price hikes, but the tax did not cause them, except to a very minor degree.

Price hikes did happen for legitimate reasons: the cost to businesses of new computers, software, stock reviews, computerising detailed stock records, was significant. That has to be paid for from somewhere and some shops that had run simple purchases v sales accounting systems did increase prices slightly to cover their additional costs. Today, though, most of those shops have put their prices back in line with, e.g. supermarkets although chain-store convenience shops, as they do in any case, remain often more expensive. Again, in that case, it's nothing to do with GST.

There was outcry at the supposed increase in taxi fares, particularly in Kuala Lumpur, that was far above the 6% that GST is set at. But, that, too, is a false criticism. Taxi fares were scheduled to increase several weeks before the increase in GST. Recalibrating meters is time consuming for the drivers and expensive. Taxi fares were to be subject to GST and therefore meters would need to be recalibrated to take that into account. It was therefore decided that the fare increase would be delayed so that only one recalibration would be required. Even though this was clearly explained, users saw only an increase in what they paid that exceeded the 6% for tax. They erroneously blamed that on the tax.

There was confusion, spread by social media and through messaging services, reported but not properly explained by general media, as to the difference between "service tax" and "service charges." F&B had long applied what it called "++" to its bills. This meant that service charge and sales tax were added to the final bill. Service charge was, usually but not always, 10%. Sales tax was 6%. People could not get their heads around there being a "service charge" and a "services tax." They argued, wrongly, that they were being taxed twice. No amount of explaining, in the early days, got the message through that "service charge" goes to the company and GST goes to the government. Moreover, no amount of explaining made those who prefer rumour to fact understand, and disseminate, that 6% sales tax is the same, to them, as 6% GST.

Were there some cases where GST did in fact directly cause an increase in cost? Yes, but those cases are almost exclusively due to the fact that GST has a wider application than sales tax did. There were errors of judgement in its scope. For example, many foodstuffs were now taxed. There were inconsistencies: for example:

- flour in a plastic bag was exempt as a base ingredient, flour in a plastic bag in a box was regarded as packaged and/or processed and therefore subject to GST.

- a table-top gas cooker that takes supply from a cylinder was zero rated if it had two burners but subject to GST at the standard rate if it had only one.

- GST is charged on, for example, electricity and gas supplies. While this means a guaranteed revenue stream for government, these are essentials and one of the valid arguments against the tax as imposed is that there should be no tax charge for the things people need to live. Electricity and gas, water and sewerage, should, as a matter of public policy, be exempt tax. However, ancillary services excluding safety checks, are properly subject to GST.

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