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One of the three criteria Tony Pua sets out on the Goods and Services Tax (GST, also known as the value-added tax) is that Malaysia must be a high-income country. Despite the fact that neighbouring Indonesia (10%), Thailand (7%), and the Philippines (12%) in addition to Singapore (7%), have the GST.

Today, out of a population of 27 million, there are in effect only 1.8 million tax-payers who pays any income tax, or only 6.7% of the population. Even if we were to take into account only the 12 million working population, it is only 15% of them who have pay any taxes. The 85% who don’t pay are those who actually don’t qualify to pay any taxes because their income is too low. However, with the implementation of GST, every single one of them whether they are earning RM500 a month or RM1,500 a month or even RM2,500 a month, who don’t current pay any taxes, will be forced to bear the heavy burden of the GST.

Plenty of middle class households, who would otherwise be taxed in higher-income countries, pay no taxes in Malaysia. RM2,000 can afford you a pretty reasonable quality of life in Kuala Lumpur as a single, and will be sufficient for a young family in, say, Kota Bahru. They aren’t taxed not because taxing them will throw them into poverty, rather, broadening the income tax base is politically infeasible.

Tony Pua did point out several other ways to raise revenue (auctioning import quotas, for example) and save money. Nevertheless, the need for the GST goes beyond plugging budgetary holes – it serves the need to flatten the tax base.

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  1. […] for the GST goes beyond plugging budgetary holes – it serves the need to flatten the tax base. [GST for high-income economies. Only.. Rajan Rishyakaran. December 1 […]

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