GST prevents loss of billions via tax evasion

 |May 5, 2017

Prime Minister Najib Razak should seriously consider abolishing the GST (goods and services tax).

The GST is not really bad and Malaysia is actually amongst one of the lowest in the world.

No doubt this may cause a loss of RM40 billion or thereabouts a year in revenue but then this is not about economics but about politics.

You see, Pakatan Harapan is using the GST issue to turn the voters against the government.

Pakatan is promising zero GST if they come to power.

This may not happen, of course, but then Pakatan has only promised to offer the voters so this is what they are offering the voters, the promise that if they come to power Malaysia will have zero GST.

Hence it is crucial that the government abolish the GST and make the voters happy.

Then Pakatan cannot win votes by promising zero GST if they come to power since Malaysia already has zero GST now.

Black money

One unhappiness about the GST is that people can no longer evade tax like they used to.

In Malaysia, no one declares all their income and pay the full tax.

For example, according to Mahathir Mohamad, Malaysia is the third most corrupt country in the world.

If Mahathir is telling the truth, this means the ‘black money’ is huge.

And, for sure, no one will declare this ‘black money’ and pay taxes on it.

Imagine if there is, say, RM500 billion worth of ‘black money’ floating around (since Mahathir says Malaysia is the third most corrupt country in the world).

And all this RM500 billion is tax-free because it is under-the-table money and not declared.

That means the country is losing billions in tax revenue.

And over, say, 30 years, how much money do you think the country has lost?

But now, if Malaysia has GST, whenever that ‘black money’ is spent the country will earn some tax on it.

If not the country earns nothing; when the money is earned as well as when it is spent.

Tax free

Direct selling is very popular in Malaysia.

And no one pays any tax on this.

Walk into any government department and you find that many of the 1.5 million government servants are agents of one thing or another.

But no one pays any tax on this ‘cottage business’.

And it runs into hundreds of millions if not billions.

Cosmetics. Home stuff. Vitamins and health products.

You name it and someone somewhere is selling it on a direct sales basis.

And it is all tax-free.

This is almost like in Russia where the ‘black economy’ is bigger than the ‘white economy’.

And that is why Russia charges 18% VAT (value added tax).

If they cannot tax you when the money comes in (and they cannot) so they tax you when you spend the money.

Does that not make sense?

In the UK they tax you 20% (minimum) when the money comes in and another 20% when you spend the money.

So you effectively pay 36% (minimum) on your income.

Poor people

They argue that it is haram to tax poor people.

In the UK even those on welfare pay 20% VAT.

So you receive welfare aid from the government but pay 20% VAT.

Of course, for essentials such as food, children’s clothes, etc., there is no VAT.

But many people who are on welfare smoke, drink (every day at the pub) and own cars (so they buy petrol).

Hence you must pay VAT plus other taxes.

The only way to escape taxes is to not smoke, drink or own a car (which you should not since you are spending your welfare money on all these).

So, in reality, the very poor can be exempted from paying VAT or GST.

Just don’t drink, smoke, drive a car, go out to eat every night, go clubbing, go on shopping sprees, and so on.

If you are very poor and yet you drink, smoke, drive a car, go out every night to ‘enjoy’, indulge in shopping sprees, etc., then you will have to pay GST.

If you can afford to drink, smoke, drive a car, go out every night to wine and dine, go shopping for your wants and not for your needs, then surely you can afford to pay GST.

Forbidden tax

The argument is it is haram to levy GST on poor people.

I was involved in distributing zakat to poor people in Kuala Terengganu back in the 1980s-1990s.

These poor people eat basic food and live simple lives.

Even if there is GST they will not really be affected.

However, if they start ‘living it up’, then GST will affect them.

Anyway, if they are really poor then they can receive welfare.

The problem comes in when those who are on welfare have five, six or seven children and many more grandchildren.

I have seen huge families where no one works and they are all on welfare.

Even when we offer to find work for them they decline.

The answer they give is they ‘puas kerja’, meaning bored of working.

So they are poor and on welfare mainly because they are lazy.

And because of a handful or lazy people the country has to lose RM40 billion a year on revenue?

Problem with zakat

I was the chairman of our local mosque for more than ten years.

I was also involved in the Rotary Club.

I have seen many things and I know that not all poor people need to be poor if they are not lazy.

The problem is Islam has this thing called zakat.

So these poor people come around asking for zakat.

I have had people knocking on my door asking for zakat.

These are strong and healthy people.

And when, instead, I ask them to earn the money, say by washing my car, they walk away grumbling ‘orang kaya kedekut’.

Yes, these are the ‘poor’ people you are talking about.

One thing I must admit is the Chinese are not like this.

This is mainly a Malay-Muslim predicament.

And that is why the Muslim ‘scholars’ are opposed to the GST.

It is because there are many poor Malays-Muslims.

The question is are they poor by choice or are they real ‘victims’ of poverty?

Don’t get me wrong.

There are also poor Chinese.

When I was running a fleet of five fishing boats in Terengganu I employed poor Malay fishermen.

But then we kept losing money.

I then replaced them with poor Chinese fishermen from Sabak Bernam and we made money.

This is because the Chinese fishermen were hardworking while the Malay fishermen were lazy.

Then someone from Umno complained and the Fisheries Department called me in for a meeting and told me that I was forbidden from employing ‘outsiders’ and must employ local fishermen.

Of course, outsiders meant Chinese and locals meant Malays.

In the end, I sold off my fleet and lost quite a bit of money (these boats were big trawlers).

Ground reality

So you see, I know more about this matter than you think.

Many of you sit behind your computers and post comments.

You know nothing about the reality on the ground.

You open your holy books and start screaming haram and halal.

I have been in the field for 40 years since the 1970s and know the difference between theory and reality.

So, yes, Najib should abolish the GST so that Pakatan can no longer use this as an election issue.

No doubt the country is going to lose probably RM40 billion in revenue.

But then this money can be replaced by slicing the spending budget.

For example, the government can spend less money on Chinese schools, mosques, security, hospitals and healthcare, education, and so on.

The government can also freeze the intake of staff and when government servants retire you do not replace them.

Over time the civil service will shrink and less money will need to be spent on running the country.

No doubt we may end up like Indonesia but then if we can reduce spending so that the GST can be abolished that is all that matters. – Malaysia Today

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Raja Petra Kamarudin or RPK, cousin to the Selangor Sultan, is one of Malaysia's earliest online 'citizen journalists'. He started his website in 1995 before the internet 'explosion' triggered by the Reformasi movement in September 1998. Malaysia Today was launched as a blog in August 2004 and is one of the few pioneer blogs still active and posting articles on a daily basis 24-7. RPK, 66 years old, has been writing since 1990.