Is GST fair?

The budget is out and the just about everyone has made it clear about what they feel, their opinions,  with regards to the budget. Opinions, someone used to tell me, is like an asshole - everyone has one.

Of course, the most sensational parts of the budget are the taxes.It almost dominates all conversations and reports on the budget. Politician and their supporters from all side came out with their arguments supporting or disagreeing on the taxes.

Well now that since almost all important people has made their statements, it is about time this not-so important guy state his views. I do not work for the government so my loyalty would not force me to look it from a completely positive view, neither am I a professional bodies beholden to the government. I am certainly not in the  opposition, hence my views should not have the default view set to negative.

1. GST and the Sales and Services taxes

GST of 6% is said to replace the existing sales and service taxes which is between 6% to 10%. Some, especially pro-government, might have the impression that this is a good thing; replacing the higher tax with a lower tax.

The thing is GST is supposed to increase the amount of tax revenue to the government to firstly replace the Sales and Service taxes AND secondly the reduced income tax haul. Mathematically speaking, this means that the GST is going to cover more products and services than the existing sales and service taxes. As an individual, you will definitely end up paying more under GST compared with the Sale and Service taxes.

2. Fairer tax collection system?

The question would be is whether, if you are currently a tax-payer, would you be paying more tax (Income tax plus the GST) under the new GST regime or less? If more then that sucks and does not make sense. If the purpose of broadening the tax net is to create a fairer tax collection system, where those who used to evade tax are no going to get taxed, making the existing tax-paying citizens forking out more money under GST is not fair at all. It is status quo made worse.

But in order for us to assess this, we need to look at the new income tax (IT) structure and the GST amount that is slapped on a typical 'basket of goods'. We cannot accept that GST is fair just because the textbook says so and it is parroted by the accountants and the economists.

To put it in perspective, it is reported that our inflation rate is less than 3%. For the purpose of argument, lets assume that I expect that the GST may then add on additional 3% to 5% to the inflation rate in 2015, because some items which was not taxed before would now cost at least 6% extra - in the first year. If that is the case, existing tax-payers must see an increase of at least 3% to 5% in their disposable income after income tax for them to be better off, compared to before the GST regime. Remember, the additional income must come from revision in IT alone, not from pushed up salary/income.

View and comments are welcomed :-)