Thursday, February 11, 2010

YBhg Datuk Kamariah Hussain,
Tax Review Panel,
Ministry of Finance,

YBhg Datuk,

I refer to the statement of yours, as follows :

"...The implementation of the Goods and Services Tax (GST) will not lead to price increases. This is due to GST will be offset by the abolishment of the sales and services tax (SST).

With GST, the consumers would pay 4.0 per cent tax compared with the current service tax of 5.0 per cent and sales tax of 10 per cent. Consumers currently pay about 2.8 per cent in tax in the prices of goods purchased but with GST, the tax element will be reduced to 2.5 per cent. Based on this, logically the price should decrease as registrants will be able to claim on GST incurred on their inputs.

Ministry of Domestic Trade, Cooperative and Consumerism is coming up with a regulation to address issues of businesses taking advantage and keeping the savings to themselves instead of passing on savings to consumers.

The government currently collects a revenue of almost RM11 billion to RM12 billion from SST. However, under the GST system there will be an estimated shortfall of RM1 billion in revenue. In order to collect the same amount, the government would have to impose a 4.2 per cent GST rate.

The proposed GST model is a broad-based consumption tax in the form of value added tax and it covers all sectors of the economy as well as imposed on the supply of goods and services and is reported that the government aimed to fully implement the GST in mid 2011.

Currently, more than 140 countries have implemented GST and if based on the earlier Malaysia Company, Individual and GST Tax Compared with ASEAN Memberspost, Malaysia 4% GST will be the lowest in the ASEAN countries.

To conclude, the implementation of the GST will indeed decrease the price and not increase the price of the products and services in mid 2011..."

While I acknowledge that with the current financial situation of the country, GST is inevitable. But I am afraid that if we believe with what was said by you, we will be fooled. No doubt that certain goods, especially in food outlets like KFC and Pizza Hut , there will be reduced in price because of lower 4% tax as compared to the 5% government tax, and some goods with 10% sales tax, but the number are not big. In fact those who are not eating out may not be affected at all. But how about those who are eating at home? Everything will be slapped with a 4% GST, and in fact household expense should increase by 4%. Therefore the statement of no price increase (or rather no expenses increase for us) is irresponsible and misleading.

Our expenses will certainly increase with the broad base 4% GST over very much wider range of products and goods. The government may have to collect less for the current sales and service tax structure for limited number of goods like KFC chicken or MCDonald Hamburger or Starbuck coffee, but surely the government will collect more tax revenues with the extra 4% collection from many other goods will be very much higher than the reduction of taxes for certain goods.

Again, sorry YBhg Datuk. I can think and cannot be so easily fooled. The only way that prices can be reduced if the producers or merchants reduce the price, as additional tax alone is a price up for the consumers, except for those goods under the current sales tax and service tax structure.

Thanks and kind regards,

Shah Alam.

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