The word is out. The government is more serious this time. It doesn't come as a surprise to me at all. All those articles (mostly written by Big 4 tax partners) promoting the need to introduce for GST is a prelude of this announcement. There was also this action taken by MyCC on AirAsia and MAS which I suspect, was a show of action taken to ensure industry pricing will be competitive. I have written previously the need for pricing to be competitive, so that any tax savings from claim of input tax credit will lead to reduction in prices, if all businesses are competing one another. Unfortunately, most industries and businesses here have associations, and they do collaborate when it comes to pricing. Let see if any action will be taken by MyCC on the transporters association. So far, MyCC only requested for explanation and given the number of manpower, this agency is not going to change the way business is done here.
Let's take one step back and ask ourselves why this new tax is needed. To boost government revenue? To make more people pay tax instead of the current small percentage? What is wrong with the existing tax system? Not wide enough to capture everyone? Is there some weaknesses in the tax law or lack of enforcement? Before the government quickly jump into the GST bandwagon joining many other countries, the government should first explore the weaknesses within the current income tax law.
One funny reason for the introduction of GST is because many countries already have it. Well, I believe some countries like Hong Kong, Brunei and Myanmar have not adopted GST. Even in China, VAT is gradually introduced as a pilot programme in certain areas only. So, if the reason is because of merely following other countries, for your information, there are many other form of taxes that our country has not implemented at all.
For a start, many countries are actually taxing its residents' income on worldwide scope basis. Capital gains are also normally treated as taxable profit in many countries. Did the government consider widening the scope of taxation through the existing income tax law before introducing GST? Oh, I may have overlooked, introducing such changes will have impact on corporate tax payers and they do pose significant influence on the policy makers.
Some may say income tax is not an efficient revenue collection mechanism as it is subject to honest declaration by tax payers. While I can't deny that everyone want to pay the least amount of tax, the government should also be aware that there is lack of enforcement that is causing lower revenue. For example, in many countries, tax is withheld and remitted to tax authorities when certain payments to resident (aka local withholding tax). Currently, withholding tax in Malaysia is only imposed on certain payments to non-residents (apart from the normal MTD imposed in employees). Expanding the scope of withholding tax to include payments to residents will certainly reduce the loss of tax revenue as it will collect taxes from a group of local tax payers who are currently may not be fully declaring their income. I am not surprised if some land lords don't declare their rental income. In Indonesia, their local withholding tax is also applicable on purchases of certain goods as well. No tax payers can evade at all.
Of course, we have the developed countries that are more aggressive in taxing the rich where they have inheritance tax and net worth tax. These taxes are less seen in emerging economies yet but nonetheless, it is something the government can consider. Ultimately, who does the government intend to collect more tax from? The rich or the poor? You think the poor should not be paying GST as food will be zero rated? The urban poor still need to eat outside and there will be GST imposed by restaurants. Coffee shops may not reach the RM500,000 threshold but voluntary registration is allowed.
Some may argue GST can reduce cost of doing business due to the refund of input tax credit. But how soon can that credit be refunded? If it takes a long time, businesses will still be saddled with cash flow problem and will need to somehow shift this GST cost to the consumers. Is the Customs ready for a quick GST refund? What about other countries experience? Indonesia is one of the earliest country in this region to have implemented GST (it's called VAT there). After so many years, has the VAT refund in Indonesia should be the most efficient. However, it has been the reverse. Over the years, the Indonesian tax office has been making VAT refund a lot more difficult with estimated time span of close to 1 year for it to be refunded. It is also onerous on businesses seeking for the refund to ensure the tax invoice is genuine as penalties will be imposed on the refund applicant if the VAT collector does not remit the VAT to the tax office. In short, after so many years of implementation, the Indonesian tax office is still battling with VAT refund fraud. You can say the same for countries like Thailand or the Philippines.
Seeing such grim experience in other countries, one should then ask, is the Customs clean and efficient to administer GST? Can the GST be quickly refunded and with proper verification? We should also realise that it is not impossible for GST to be fraudulently refunded. All you need is fake tax invoice, a newly set up dormant company (you can get some fake IC as directors and shareholders) and collaboration with the right Customs officer. Well, if land can be illegally transferred, it's not too difficult to pull out such scheme. When more and more such cases discovered, the refund process will be lengthened and the cost will rise. Is the Customs clean and ready to take on this responsibility? By the way, what is the progress of the investigation on the murder of a high ranking Customs officer?
And to the Big 4 tax partners, please do your part to do the right thing. The best CSR you can ever do is to oppose the GST until we are ready and after all other form of corporate taxes have been fully implemented. Please do not be blinded by the revenue from the GST implementation. We all know, we are not ready and this GST is not necessary. There are other ways to fix the current problem. Don't make the people take on this burden and let the corporate get away.
Let's take one step back and ask ourselves why this new tax is needed. To boost government revenue? To make more people pay tax instead of the current small percentage? What is wrong with the existing tax system? Not wide enough to capture everyone? Is there some weaknesses in the tax law or lack of enforcement? Before the government quickly jump into the GST bandwagon joining many other countries, the government should first explore the weaknesses within the current income tax law.
One funny reason for the introduction of GST is because many countries already have it. Well, I believe some countries like Hong Kong, Brunei and Myanmar have not adopted GST. Even in China, VAT is gradually introduced as a pilot programme in certain areas only. So, if the reason is because of merely following other countries, for your information, there are many other form of taxes that our country has not implemented at all.
For a start, many countries are actually taxing its residents' income on worldwide scope basis. Capital gains are also normally treated as taxable profit in many countries. Did the government consider widening the scope of taxation through the existing income tax law before introducing GST? Oh, I may have overlooked, introducing such changes will have impact on corporate tax payers and they do pose significant influence on the policy makers.
Some may say income tax is not an efficient revenue collection mechanism as it is subject to honest declaration by tax payers. While I can't deny that everyone want to pay the least amount of tax, the government should also be aware that there is lack of enforcement that is causing lower revenue. For example, in many countries, tax is withheld and remitted to tax authorities when certain payments to resident (aka local withholding tax). Currently, withholding tax in Malaysia is only imposed on certain payments to non-residents (apart from the normal MTD imposed in employees). Expanding the scope of withholding tax to include payments to residents will certainly reduce the loss of tax revenue as it will collect taxes from a group of local tax payers who are currently may not be fully declaring their income. I am not surprised if some land lords don't declare their rental income. In Indonesia, their local withholding tax is also applicable on purchases of certain goods as well. No tax payers can evade at all.
Of course, we have the developed countries that are more aggressive in taxing the rich where they have inheritance tax and net worth tax. These taxes are less seen in emerging economies yet but nonetheless, it is something the government can consider. Ultimately, who does the government intend to collect more tax from? The rich or the poor? You think the poor should not be paying GST as food will be zero rated? The urban poor still need to eat outside and there will be GST imposed by restaurants. Coffee shops may not reach the RM500,000 threshold but voluntary registration is allowed.
Some may argue GST can reduce cost of doing business due to the refund of input tax credit. But how soon can that credit be refunded? If it takes a long time, businesses will still be saddled with cash flow problem and will need to somehow shift this GST cost to the consumers. Is the Customs ready for a quick GST refund? What about other countries experience? Indonesia is one of the earliest country in this region to have implemented GST (it's called VAT there). After so many years, has the VAT refund in Indonesia should be the most efficient. However, it has been the reverse. Over the years, the Indonesian tax office has been making VAT refund a lot more difficult with estimated time span of close to 1 year for it to be refunded. It is also onerous on businesses seeking for the refund to ensure the tax invoice is genuine as penalties will be imposed on the refund applicant if the VAT collector does not remit the VAT to the tax office. In short, after so many years of implementation, the Indonesian tax office is still battling with VAT refund fraud. You can say the same for countries like Thailand or the Philippines.
Seeing such grim experience in other countries, one should then ask, is the Customs clean and efficient to administer GST? Can the GST be quickly refunded and with proper verification? We should also realise that it is not impossible for GST to be fraudulently refunded. All you need is fake tax invoice, a newly set up dormant company (you can get some fake IC as directors and shareholders) and collaboration with the right Customs officer. Well, if land can be illegally transferred, it's not too difficult to pull out such scheme. When more and more such cases discovered, the refund process will be lengthened and the cost will rise. Is the Customs clean and ready to take on this responsibility? By the way, what is the progress of the investigation on the murder of a high ranking Customs officer?
And to the Big 4 tax partners, please do your part to do the right thing. The best CSR you can ever do is to oppose the GST until we are ready and after all other form of corporate taxes have been fully implemented. Please do not be blinded by the revenue from the GST implementation. We all know, we are not ready and this GST is not necessary. There are other ways to fix the current problem. Don't make the people take on this burden and let the corporate get away.
No comments:
Post a Comment