Monday, November 4, 2013

Is taxes such a "taboo" word?

Ever since human being lived in a tribe, that was probably when taxes was initiated. The proposed GST had so many people debating whether it should be implemented in Malaysia whereas there are already 160 countries in the world already doing the same - some countries charging as high as 21%. Now what confuses me is that we hate to be the worst as in one of the most corrupt country in the world (which I love to despise as well), but when comes to implementing GST in which case we are one of the last country to implement it, we lament about it. It is regressive, we say. We like to be the odd one out in this case.

We call it taxing the poor, we do not mind more of the government's revenue to be from petroleum tax (does anyone know that 40% of the government's revenue is dependent on one way or another on petroleum?). This is surely a cause for concern, but yet we are all for a more regressive way for government to tax i.e. corporate tax, taxing the rich whereas we know the rich are the ones that have more avenue to move abroad ANYTIME, petroleum tax, a corporatised government etc. (yes, Malaysian government are in business in a large manner - CIMB, Maybank, Sime Darby, IHH - to name a few)

We want to compare with Singapore (especially) and Hong Kong but we can't accept GST and calling it a way for the government to tax the poor. Singapore has GST. Singapore has low corporation tax, low rich people tax. Why is it that Eduardo Saverin (one of the founders of Facebook) moved to Singapore just about before Facebook was about to be listed - to avoid the US tax structure. What is US loss is Singapore's gain. Similarly, there are potentially many more cases of what is Malaysia's loss is Singapore's gain - brain drain!

If you are working class middle income, living in Singapore and Hong Kong (due to many factors such as real estate, transport etc) is stressful, but yet these people are willing to move to Singapore because of its currency strength, low taxes, government efficiencies. But yet have you heard of the saying that, in every other area, besides being a tax haven for many corporations and rich individuals "the Singapore government will tax you back everywhere else, even if you drive to the city, you will get taxed. That's where they are smart and we are not."

Singapore government understands that by taxing 15% off your USD1 billion profit is USD150 million for them whereas 25% tax by the Malaysian government on zero profit is zero revenue for the government, but at the same time we are subsidizing on petrol, rice, sugar (now no more), amenities through attracting low value-added jobs. We like to hire foreigners whom work in the palm oil plantation, construction, some labour intensive manufacturing sector but less-likely to hire individuals who are earning high enough to pay large taxes.

Every low value added job and less-profitable company that we attract is actually a loss to the country, but we have not been thinking that far, aren't we? We do not want companies that are attracted to Malaysia due to its ability to hire foreigners whom are lowly skilled as by doing this, we are subsidizing these companies and people through the subsidies on transportation system, food, schools, hospitals and many other areas. Imagine we already have some 2 million of these people, who are contributing very little tax revenue and that comprised to about 7% to 8% of the total population we are subsidizing.

The more the country is in subsidy mode, the more I am thinking we are benefiting the low income foreigners than the general Malaysian ourselves. Low income foreigners do not buy car (highly taxed), they seldom go to restaurants, watch movies. But yet they eat rice, take buses, LRTs which are largely subsidized.

GST is a system which is addressing that leakages and it is a more sustainable revenue even when our wells dry up, corporations have their ups and downs, individuals comes and go. Regressive we call it? Then why are we lamenting? Think hard on that!


Zuo De said...


I share the same sentiment as you but not able to articulate as well.

Thank you.

ET said...

your main point is that we should not tax the rich so much because they can always have ways to avoid it.

Do you really think that the rich will not evade their tax by lowering their tax rate? Unless, you lower their tax rate to close to zero, they will continue to evade their tax.

There are other more progressive taxes compared to GST. How about capital gain? There is no reason to tax the poor folks while the investors can have their income free of tax.

felicity said...

I know this can be sentimental as it involves taxing more people and GST is upfront, which is you know you are being taxed directly.

Capital gain can be thought of. Just that it is not wide ranging enough and will not be sufficient.

GST is a way to rein evasion of tax, which is why it is highly effective as compared to corporation and other taxes such as excise, import etc.

ET said...

I don't deny that GST is an effective way to collect tax. Of course, It will be easier to collect tax from the average folks, who are not armed with accountant and lawyer, compared to those powerful rich folks.

AdCool said...

As long as you don't consume the taxable goods, you won't be taxed. And I believe the poor would not go and spend at restaurants or buy gadgets or even go for fancy stuffs. They are more towards basic necessities which aren't taxed by GST.

Btw, before GST, we already have Sales Tax and Service Tax. It's just that it's not taxed directly and thus the consumers didn't really realize that they have been taxed upfront cause the manufacturers have factored in their cost and selling price.

@ET, I think your concerns are more relate to the middle income group as they would be the one consuming most of the taxable goods and services. In any countries, when comes to taxing, the middle group will always get the squeezing.

Either you move up the chain of wealth or you make sure you remain poor and get helps. If you are in the middle, then get squeezed like a sandwich.