GST’s impact on GE14

HARAPAN Hapuskan GST (Harapan will abolish GST). These words in large capitals printed on large billboards with a red background encapsulate what the Pakatan Harapan (Pakatan) coalition believes is its best strategy to win a parliamentary majority in the 14th general election (GE14).

Also printed on many of the billboards is a small Malaysian flag, a large photo of Pakatan's nominee and in smaller font the candidate's name and the constituency.

Particularly in Bahasa Malaysia, Harapan's slogan is both punchy and memorable. As voters cast their ballots next Wednesday, a key question is whether GST will be political TNT for the ruling Barisan Nasional (BN).

In GE14, BN hopes to increase its tally of seats at the federal and state level, regain its two-thirds majority in the Dewan Rakyat that will enable it to enact single-handedly constitutional amendments and expand the number of state houses under its control.

Opinion pollsters say the goods and services tax (GST) is the top issue in GE14. Implemented on April 1, 2015, GST replaced the sales and service tax (SST); this makes next Wednesday the first poll on this indirect tax.

That GST is a major electoral issue is due to its near-universal impact on Malaysian consumers, efficacy in generating government revenue and its poorly-designed fiscal structure.

One set of figures underscore GST's revenue-enhancing capacity. Last year, GST generated a potentially irreplaceable RM44 billion in government revenue.

This means GST corralled nearly 2.6 times more than the RM17.1 billion collected from SST in 2014 while consumers paid almost RM27 billion more for goods and services last year than three years ago.

Another pair of figures highlights GST's ubiquity. Only 1.7 million Malaysians pay income tax out of a workforce of 12 million.

Francis Hutchison, a senior fellow at the Institute of Southeast Asian Studies-Yusof Ishak Institute in Singapore, told a forum last month the introduction of GST means everyone now pays tax instead of only the top 20% of income earners and the upper-middle class.

The lower-middle class, which found itself paying taxes for the first time, was hit the hardest because a third of their daily household items were not exempt from GST, Hutchinson added.

Because Malaysian consumers now pay GST every day, they have a bigger interest in how their tax money is spent. This is one reason why corruption in general and the 1Malaysia Development Berhad (1MDB) scandal in particular has become a pre-eminent issue in GE14.

While few understand the complex transactions involving 1MDB, the Opposition has simplified the issue to one number – the US$4.5 billion, or RM17.5 billion, the US Department of Justice claims was stolen from 1MDB.

Politically popular, though fiscally hazardous, are the sums in Pakatan's Alternative Budget.

Pakatan asserts the RM44 billion forfeited by eliminating GST can be partially compensated by re-introducing SST which reaped RM17.1 billion in 2014 (the last full-year of SST) and slashing the allocation for the Prime Minister's Department (PMD) from RM20.8 billion to RM8.4 billion. Both measures will reduce the fiscal gap to RM14.5 billion, Pakatan says.

Co-incidentally, the alleged RM17.5 billion misappropriation from 1MDB – assuming it happened in one year – exceeds the RM14.5 billion shortfall between eliminating GST and replacing it with SST combined with cutting PMD's allocation.

This is another reason why Pakatan's demands for greater accountability in the 1MDB imbroglio could gain added resonance among voters.

Worldwide, Singapore's PAP is one of the few ruling political parties that have survived the imposition of new significant tax. When the republic introduced GST on April 1, 1994, it was crafted to ensure the impact on consumers and businesses was minimal.

First, GST was first levied at 3% in Singapore compared with this country's 6%.

Second, because GST was intended to broaden the tax base rather than to generate revenue, it was deliberately designed to be revenue negative for the first two years.

Singapore collected less money from GST in the first two years than the offsets claimed from the government by GST-registered businesses for their purchases known as the input tax.

Third, Singapore's threshold was annual turnover of S$1 million in 1994 compared with Malaysia's RM500,000 level in 2015. Singapore's threshold required only 15% of businesses to register for GST, Chia-Tern Huey Min, deputy commissioner of International Investigation and Indirect Taxes Group, told a seminar in 2014.

Thirty-two months after introducing GST and helped by an ultra-attractive carrot – a promise of a free upgrade of Housing and Development Board flats by the government – Singapore's ruling party PAP won the general election in January 1999.

Reversing the electoral decline in previous elections, the PAP raised its share of the popular vote by four percentage points to 65% in 1999 and won back two out of four seats lost in the previous poll.

Next Wednesday, can BN emulate its neighbour across the Causeway?

Opinions expressed in this article are the personal views of the writer and should not be attributed to any organisation she is connected with. She can be contacted at siokchoo@thesundaily.com