Savings that households stand to make with the introduction of the new income tax structure proposed in Budget 2014 are not likely to offset the amount paid when the Goods and Services Tax kicks in beginning April 2015.
However, according to Chartered Tax Institute Malaysia president SM Thaneermalai, this is to be expected as the government would not have introduced the GST, unless it meant more revenue.
"We must accept that by introducing the GST, the government will be making more in tax revenue," Thaneermalai said when contacted.
Malaysiakini estimates that for some income brackets, the amount of GST to be paid annually can be almost three times the amount of savings made under the new income tax structure, depending on the income level.
Using consumption data published in the Bank Negara Malaysia 2012 annual report, it can be extrapolated that those in the middle income - the RM4,000 to RM5,000 a month income bracket - may pay around RM200 to RM260 in GST per month.
This means they will pay between RM2,400 and RM3,120 in GST annually, but only save RM1,050 under the new income tax structure.
However, this does not take into account savings that may be made from the scrapping of the sales and services tax. The government argues that some goods will be cheaper as a result.
This also does not take into account food items such as meat, fish and vegetables, which mostly have zero GST. However, Bank Negara estimates that a great bulk of spending by those in this income bracket is not on food.
In addition, those in the RM4,000-RM5,000 bracket pay more GST, as a proportion of their income, compared with those earning higher than RM5,000 a month.
Likewise, they will pay less GST as a proportion of their income, compared with a person earning RM4,000 and below.
The same finding was found by Penang Institute fellows Lim Kim Hwa and Ooi Pei Qi in their study published earlier this month.
Although their research used a GST rate of seven percent - one percent higher than that proposed by the government last Friday - a similar pattern can be found with GST at six percent.
Who to pay the most GST?
Using the Department of Statistics household expenditure survey, the Penang state think-tank also found that these households with the following profile will pay a higher GST as a proportion of their income:
- Single person
- Young (aged less than 24 years old)
- Clerical workers, skilled agricultural and fishery workers
- Chinese-led households
- Head of household aged between 35 and 44 years
- Professionals, managers, senior officers and legislators
Meanwhile, Thaneermalai pointed out that in the initial stages, the middle and lower income groups would be beneficiaries of about RM5 billion in welfare aid and tax breaks to cushion the GST blow.
"The estimate revenue from GST at six percent is RM8 billion, but we cannot forget the reduction in income tax, tax breaks for those earning RM8,000 and below, the expansion of the Bantuan Rakyat 1Malaysia and the RM300 additional one-off assistance to those already receiving BR1M.
"For 2014-15, the government will be paying roughly RM5 billion, bringing the (initial) net effect of the GST to about RM3 to RM4 billion," he said.
Thaneermalai said what people needed to accept was that government would not put everybody through the pain of the GST if it did not mean more money in the coffers by implementing it.
"So, on the revenue side, things are looking better for the government but it will have to watch the spending side," he said.