Many vexed over Malaysia's new tax

KUALA LUMPUR - When Malaysia introduced a 6 per cent goods and services tax (GST) in April, it threw prepaid mobile phone user Fathi Faruq - and about 30 million other users like him - into weeks of confusion before dismay turned to anger.

Mr Fathi found that his prepaid mobile reloads cost 6 per cent more overnight.

The flood of complaints led the government to look into whether telcos should absorb the new tax, the way they did the pre-GST 6 per cent sales and services tax.

But the engineer hit the roof when Communications and Multimedia Minister Ahmad Shabery Cheek announced on May 13 that GST would not be levied on credit top-ups, but on usage - calls, text messages and data - instead.

"Another example of the government taking users as gullible fools. What problem does this solve?" said the flabbergasted 27-year-old.

Two months into the new GST regime, complaints over indiscriminate price increases and a complex accounting system that involves thousands of exemptions are yet to be resolved.

Most economic analysts support GST as an efficient and transparent taxation system to weed out tax evaders and a "shadow economy" in the black market the government estimates to be worth nearly a third of the country's gross domestic product.

But opponents of Prime Minister Najib Razak have used the broad-based levy to attack his government amid allegations of lavish spending.

The new tax has also been singled out as a key factor in the ruling Umno-led Barisan Nasional (BN)'s disappointing results in two recent by-elections.

Managing director Charon Wardini Mokhzani of government- linked think-tank Khazanah Research Institute told The Straits Times that, politically, "there never is a right time for a tax".

"What we don't know yet is where the burden of this tax falls," he said, adding that a full survey of its impact by the Department of Statistics is ongoing.

Former premier Mahathir Mohamad, who is on a campaign to bring down Datuk Seri Najib, said the GST is the single most important issue driving away BN's supporters in rural areas, rather than the heavy debt burden of state investment agency 1Malaysia Development Berhad.

"The focus there (in rural areas) is GST, higher cost of living, the increase in prices of goods," Dr Mahathir had said after BN saw its winning margin slashed in its stronghold of Rompin, Pahang - Mr Najib's home state.

The prepaid mobile reload debacle has been a lightning rod for criticism, with the opposition saying that while the prime minister blamed errant traders for price hikes, his government was colluding with rich telcos to profiteer from the highly regulated industry.

"We have done assessments and everything does go up, while the government is saying nothing is going up. That kind of wrong communication has basically created distrust," Mr Nizam Mahshar, chief executive of the Malay Economic Action Council, told The Straits Times. The non-governmental organisation represents the business interests of Malays, the BN's most important ethnic vote bank.

Consumers have also complained that fresh food prices have gone up even though this food category is fully GST-exempt.

Indeed, Malaysia's consumer price index (CPI) in April saw food and non-alcoholic beverages rise 3.1 per cent from the same period last year, and 1.1 per cent over the previous month (March).

Datuk Ameer Ali Mydin, managing director of supermarket chain Mydin, told The Straits Times that it absorbed GST for April at a cost of RM15 million (S$5.5 million) before charging the tax last month.

But he insisted that prices of food, as well as health and beauty, products have eased by about 0.1 per cent at the beginning of last month.

Some items have been found to cost far in excess of 6 per cent. The GST is a value-added tax, meaning there should be no compounded "tax-on-tax".

However, some traders are tacking on compounded GST at each step of the supply chain.

This has left consumers who do not cook from scratch, like Mr Paul Colclough, 50, having to shell out hundreds more each month for the household.

"The same canned tuna which cost RM5.50 is now RM6, and chocolate soya milk that was RM5.40 is now RM6," he said.

"And it looks like it will get more expensive as the grocer seems to raise prices every two weeks."

Mr Joseph Wu, who runs a food-processing business, also puts the blame on greedy traders.

"Some increase their prices even before charging the 6 per cent on paper. They abuse the GST concept and say others have charged them GST, which adds to their cost," he told The Straits Times.

Mr Ian Tan, a trained accountant who sells herbal and paper products, finds suppliers are often not sure about the tax categories. "To be safe, I just pay the full GST and then sort it out later by trying to claim the rebate."

shannont@sph.com.sg

This article was first published on June 1, 2015.
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