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 :-)

Real Property Gains Tax and an economist

 Well, if you think that it look like a propaganda, I would not correct  your impression.

For the past few days (even weeks), there have been a flurry of  'news' coming from economist and accountants in support of higher taxes, either through GST or RPGT (Real Property Gains Tax). You can read them and the GST here , here, and the bubble here.

Today the Star produced an article where an economist is seen to be favouring and pushing for higher RPGT. Meaning lets tax the people more. You can read the article here.

1. A visiting lecturer of the Asia-Europe Institute, University Malaya, Dr Jorah Ramlan said the RGPT increase could be one way for the country to increase revenue. 
"There is serious concern regarding the staggering prices of real estate in the country in recent years.

One thing he got right was that RPGT will increase the government's revenue. No brainer there. But as we have discussed earlier, in this context, revenue is not the issue. The issue is can we trust the government with more money?

2. "Increasing the RGPT will not affect the construction sector, since there will always be a need for housing development in a growing population.

RPGT basic - it affects second hand sale of properties, not applicable to new development. Sale of new developments are not affected by RPGT. If the RPGT causes price to increase (because now sellers may want to compensate for the extra tax the government is taking), that will make it worse for new housebuyers.

3. On top of that, have these people ever thought that instead of curbing price increase, RPGT could backfire by feeding into the higher prices for houses.

Those who intend to sell their houses next year could do three things:

• One, sell the house and pay the extra RPGT; 
• two, sell the house at a higher price so that net-net you will get the same with the extra tax (remember, RPGT is taxed on profits, not the sale price); In this case, this would push up the prices of second-hand houses. Exactly the OPPOSITE of what they intend to achieve (curbing price increase).
• and three, wait to sell the year after where the RPGT would be lower for him. In this third case, that will restrict the supply of houses available for sale. Under the laws of supply and demand, it could very well increase the prices of houses in the market.

Therefore, in my view, RPGT is not the way to address possible property bubble. The key is to reign in the speculative demand for houses which is being fueled by the financing banks and at the same time prevent any drastic action that could burst the bubble.