Goods and services tax inadvisable

While all seem to be elated at the prospect of the Goods and Service Tax being introduced in 2007, I am not so convinced that it is necessarily the best way forward.

GST (or by any other name such as VAT) seeks to pass on the final burden to the consumer. While all this is well and fine if we buy the philosophy that one pays for one's usage, is it really a truly just and equitable system?

Yes, essential items are zero-rated so none will be chargeable but this does not mean that the tax burden of the poor and marginalised will be eradicated.

When lower income people who pay no taxes have to buy items that are not zero-rated, he or she will suffer an new tax burden which did not exist under the previous 'income-based' tax regime.

GST compliance involves very complicated record-keeping which only benefits accountants and tax consultants, hence the glee with which this proposal is received by the two professions.

The GST system is also open to abuses. Companies registered as 'GST' vendors can claim for all and sundry and this distorts the system as an individual who uses pen in that company is not paying for the GST but an individual who is using a pen on his own capacity has to suffer the additional cost.

I have been exposed to the UK VAT system, which is what GST will be like. I never liked it as it creates extra paperwork, is open to abuse and ties up the Customs Department with loads of disagreements vis a vis what is exempt, what is zero rated and so on.

In any case, in the UK, they are soon to combine their customs and the tax departments. In Malaysia, we probably may create an altogether different department to deal with GST, creating more confusion.

The question is will income taxes be reduced as a result of GST or will it mean more taxes for the people? If the government is hoping for an increase in revenue collection, it naturally means that we will be paying more.

And won't consumption-based tax reduce consumption in turn having a negative effect on the Gross Domestic Product? After all, one should not discount the multiplier effect of spending on the economy.

One thing is crystal clear - the accounting and tax professionals will be laughing all the way to the bank. As usual, it will be the poor consumer who suffers. A small relief is that the GST on the services charged by these professionals can be set off against one's GST output.

With our record of creating a hash out of the smallest matters, I am not looking forward to 2007. Maybe, I might just go and set up a two-man GST consultancy outfit. Hey, if you can't beat 'em, just join 'em.