Commentary Economics Politics

Civil servants failed the GST

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TheMole
Written by TheMole

By Salahuddin Hisham

July 28, 2017

 THE Goods and Services Tax (GST) was already implemented for a year then.

A friend, who is a deputy director at one of the state Malaysian Royal Customs, was in town for a course on GST. It became the subject of conversation over drinks. After a few probing questions, he confided to admit : “frankly, I don’t really understand this GST well”.

That was indicative of the problems pervading GST.

Salahuddin Hisham was involved in various financial markets but has since, turned political and online.

It is an economic policy matter but since it affected everyone’s wallet, it became a public interest and now political issue. Tun Dr Mahathir Mohamad announced recently that Pakatan Harapan will abolish GST within 100 days of winning the general election.

Populist statements are appealing and should be propagated to the hilt. But, it was not done by PH. There is no road show or pamphlets circulated to promote their 7 immediate plan of action upon winning the general election.

Parti Pribumi Bersatu Malaysia (PPBM) has instructed to lie low on it and the Peoples’ Declaration. Is there a change of mind? Those not personally emotional and looking at it from public policy and economic management standpoint asked: What is their plan and strategy to replace GST within 100 days?

GST came about because the fall in oil prices denied the country by almost RM40 billion a year of revenue and the need to transform public finance to be more realistic.

In 2010, Datuk Seri Idris Jala shocked the nation with the statement that if things remained unchanged, the country would go bankrupt by 2019. The revenue inflow vis-à-vis public expenditure did not match and net off in the deficit. Subsidies were taking a major portion of the budget.

The country then was too dependent on Petrolium Nasional (Petronas)  and in lesser amount, government-linked companies (GLCs) for revenue. Private sector contribution was not significant comparatively. Income tax by Malaysians contributed less than 15 per cent.

Not inclusive of Corporate Social Responsibility (CSR) programmes, the government was doing business in order to finance government expenditure. By right, Petronas and GLCs should be in control of 65 per cent of the votes!  

GST serves to correct the tax system with a far more equitable and just one based on consumer consumption.

If the poor and recipients of Zakat Collection Centre pay Zakat Fitrah during Ramadan, similarly all Malaysians must contribute to the public coffer. There are too many freeloaders thus the tax system needed reform.

No way in hell could Pakatan Harapan abolish GST within 100 days. Not with them promising to revive the subsidies system and offer more goodies and freebies to voters. Where is the money to come from?

In theory, the GST system is fine. But in practice it did not work out the way it was supposed to. Datuk Ahmad Maslan claimed that the removal of the hidden Sales and Services Tax (SST) to be replaced by the lower on average 6 per cent GST rate should bring prices of goods and services lower. It did not.

And, wholesalers and suppliers were blamed for adding GST and perhaps more, to their price. Since the Chinese have a dominant presence in the retailing and supply sector, it had a racial tone to it. The truth to matter is wholesalers and suppliers are unclear of how the GST rebates works.

In essence, wholesalers and suppliers should get rebate thus should not add GST to the price to retailers.

The government should collect only annual company tax from wholesalers and suppliers. In the past, it was blatantly evaded together with SST collected not being disbursed to the government. The legacy of a past administration was to close an eye to maintain popularity with that network of voters.  

Wholesalers and suppliers were generally sceptical and did not believe the system would be efficient and payment on time at the initial stage. Worried it would  affect cash flow, the GST was slapped on retailers.  At  the retailers’ stage, they should be charging consumers for GST thus accelerating rise in prices.

This was one of the issues that the state Deputy Director of Royal Customs did not understand enough to answer. Imagine, the level of understanding of the lower level officers tasked to guide and resolve operational issues with the wholesalers and suppliers.

The management of the rebates needs a powerful and sophisticated information system. Accounting and payment of rebates is a daily affair and there should be no let up.

At the same time, the Royal Customs was changing their system from Sistem Maklumat Kastam (SMK) to U-Customs. It was supposed to be in sync with the implementation of GST, maybe few months late. Unfortunately it was not delivered on time and had to be given three months extension. Still not delivered, it was extended by 13 months.

Royal Customs officials were mesmerised by the latest gadgets but made the mistake of agreeing for a whole new system.

That required a comprehensive and complex work on workflow already in-built to the existing system. It meant redoing the whole system, procedures and knowledge from scratch. There was worry the data farm would be outsourced abroad and put the nation’s financial data at ransom to foreigners.

U-Customs was the brainchild of MAMPU and with the delay, retired MAMPU officials might have to be hired by the contracted IT Company to directly or indirectly expedite matters.

The contracted IT Company for the U-Customs might have botched the GST system too. The key feature of the system and of significant importance was the audit trail. Without it, the system built was  as good as useless.

These were expected operational issues and problems that should have been anticipated and addressed. Otherwise, the introduction of GST would have been smooth and seamless. With only few countries not implementing Value Added Tax system, much could have been learned from past experiences.

The former Minister of Finance 2 tasked with leading the GST implementation failed to do the necessary preparatory work. It was the civil servants that turned it into a national disgrace and made it hard for the people.

Now, it is a major political issue. 

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