A QUESTION OF BUSINESS | Nobody likes taxes. If you ask the public whether the goods and services tax (GST) should be abolished, the answer will be a loudly resounding and resonating “Yes!” But you need taxes - some of them at least.

It is because taxes are so unpopular that political parties often adopt a populist but shortsighted and backward stance to appeal for votes from the general public by promising to cut them. Such is the case with Pakatan Harapan and GST now.

Independent polls apparently say that bread and butter issues are more important than 1MDB, corruption and theft at the highest levels or kleptocracy, as if these are not important enough issues in themselves. So then to beef up your campaign, bribe the public by giving them what they want - in effect money by reducing taxes.

Never mind that this could potentially be disastrous for the economy and deny the government the money that needs to be spent to uplift the lives of the poor and could put the country back into a regressive system where the salaried get taxed more and more to feed the appetite of a growing nation.

GST has many good points which is why it has been introduced in over 160 countries in the world. It taxes consumption, broadens the tax base, captures those who are not covered by income tax and actually significantly reduces tax evasion in the system.

To understand why the proposed reduction of GST to zero if Harapan came to power is a major mistake, one has to look at the nature of GST and examine whether it is really responsible for the higher cost of living. This is a good website for understanding GST.

There are two things about the GST – one, it taxes consumption, and two, it is a value-added tax. Let’s take consumption first. It is well known that there is considerable tax evasion among businesses and businessmen. The introduction of a consumption tax recaptures some of the tax lost through evasion as those who are affluent tend to spend more on consumer items and other things.

People with more money consume more and those who are richer will pay more in GST simply because they spend more. The GST is therefore widely considered a progressive tax because in effect the more affluent you are, the more tax you pay through consumption. If you are poor, you consume less and therefore pay less in GST.

On top of that, Malaysia’s GST tax rate of a uniform 6% is among the lowest in the world, with GSTs more commonly in the range of 20%. Singapore introduced GST at 3% in 1994 and it is currently 7%, 17% higher than Malaysia’s.

Further, Malaysia has a wide range of zero-rating for GST which includes all food items, education and health services. Also, small businesses with a turnover of less than RM500,000 a year don’t have to charge GST.

These reduce the direct impact of GST on the lower-income group. But because of expectations of a general increase in price levels, food prices did increase too when GST was introduced.

The introduction of GST had a one-off effect with prices increasing most in the year of implementation - April 1, 2015, with a full year impact in 2016. That means the price-increase impact of GST is behind us.

Other reasons for continued price increases are likely to be the falling ringgit which declined nearly 19% from the time of implementation of the GST at RM3.7 to end 2016 at RM4.5 to the US dollar, about a fifth. Not all the price increase is because of GST - a major portion is also due to currency depreciation.

If Harapan is looking for the real culprit behind price increases it might well be the ringgit which is more responsible...