In the upcoming 2008 Malaysia Budget, the government may implement the goods and services tax (GST) and single-tier corporate tax. Deloitte KassimChan Tax Services Sdn Bhd technical director K Sandra Segaran said the GST was likely to be accompanied by further reductions in both corporate and personal income tax rates as has happened in countries such as Singapore.

The government could also suggest the possibility of lowering personal income tax, as the current rate of 28% for those in the top income bracket was still high. A company with paid-up capital of less than RM2.5 million would enjoy a differential tax rate of 20% on the first RM500,000 that it earned. As comparison, an individual earning RM500,000 has to pay close to RM125,000 while such a company would only pay RM100,000. Not a fair system in the tax-payment, isn’t it?

Overall, the tax experts are expecting a “friendly” budget, possibly without any increase in “sin taxes”, considering that the general election may be called soon. Nevertheless FinanceTwitter believe most readers and people would be interested in the whole concept of GST.

GST was introduced in several countries such as Australia, New Zealand, Canada, Hong Kong and the nearest is the Singapore. GST in Singapore started back in 1994 at a flat rate of 3% and subsequently raised to 4% in 2003, 5% in 2004 and 7% in July 2007.

GST is a system whereby you’re being taxed everytime you spend. So it is suppose to relieve you from paying more if you’re a careful spender. Government would argue that the system is actually a good way to encourages savings and investment instead of consumption. So far so good, but it’s only good on paper and work if you’ve the luxury of extra dollars to save. What if your monthly budget actually meets the deficit and you basically have not a single penny to save, not a surprise fact for lower or even medium income earners in Malaysia considering the high inflation nowadays?

The government would love to see GST goes through because it solves the problem of tax evasion. But the real objective of the government is to increase the income to the government’s coffer as it’s a broad-based system. Regardless whether you’re in the lower, medium of higher income bracket, you’ll pay to the government indirectly everytime you spend, even on a can of Coca-Cola. Singapore did it because its’ income from the normal income-tax is expected to decline with the ageing population.

FinanceTwitter couldn’t write more before the government announce the “scope of the coverage” which will be covered within the GST framework. Basically with the GST, the government can announce any items which will be “GSTed” anytime it desires. But with the coming general election, the scope of coverage could be small in order not to upset the voters. If the GST indeed materialized, the government is expected to announce an increment to the size of the scope gradually “after the general election”, taking the cue from the Singapore government.

Already burdened with multiple taxes, high inflation, tolls, low buying power, increase in living expenses etc, it would be very interesting indeed to know how the government plans to implement the GST without getting people to put up banners in objection. But then the GST could be put up only next year, 2008, after the general election.

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August 27th, 2007 by financetwitter

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