In Malaysia only 6.5% of its population pays tax which is approximately 1.8million people or 15% of the working population. But is it possible that there are only so little people subject to income tax when properties, cars and luxury goods sales in Malaysia has been enjoying good takeup rates all these years. Just imagine if there is only 1.8million people that is subject to tax, who are the buyers of the majority condominium and residential properties ranging above RM1million that is usually snap up or luxury cars like Mercedes, bmw and Porsche. The argument that the high end residential properties are purchased mainly by foreigners is not valid as foreign buyers account for less than 10% of the purchases transacted in the market.
Thus it is not possible that there are only 1.8million people that have the income to pay taxes. GST will result in a one-off inflation but if the Government is able to revamp the distribution of subsidies equitably, and basic necessities are tax exempt the benefits of GST should be seriously considered. The fact that there is a small base of tax payers but a huge purchasing capacity indicates the ineffectiveness of income tax and the existent of the shadow economy which some people thrive on. Thus, GST by virtue being a consumption based tax would enable the Government to capture the shadow economy for the benefit of the rakyat as most of these people would probably indulge in luxury goods or big ticket items which would be subjected to GST. Similarly for corruption, GST would enable the Government to recover a portion of the ill gotten gains through taxes. I am not advocating corruption but it is better than not collecting a single sen. For instance if what is said by the media that yearly approximately RM20billion is siphoned out is true at least RM800million can be recovered. It is a paltry sum but better than not capturing anything as it is likely that these perpetrators are not paying any income tax.
In addition some SME and business people through some tax minimisation scheme is able to reduce their tax payable but it is unlikely for them to reduce their consumption. Most countries that implement GST initially do suffer a slow growth or negative growth when they just implement GST, but subsequently as consumer adjust to the new pricing the demand will return. This means it will increase the number tax payers. There are some parties that recommend we tax the AP that are issued, and I agree it is a good source of revenue but as AP will be phased out in 2015, we should not wait until this happens to at least kick start the mechanism of the GST. Better yet, do both concurrently.
Ultimately, if the Government is able to mitigate the effect of GST especially for the 32% of the population that has income below RM2,000 per month and revamp the distribution of the subsidies to be more equitable, implementing of GST does have its merits.