PETALING JAYA - Tun Dr Mahathir Mohamed questioned the wisdom behind the government's decision to increase the prices of goods and services at a time when people were suffering a financial pinch.
In his blog Chedet, the former prime minister of 22 years acknowledged that the government needs more money but questioned if all the increases should come at the same time.
"We must accept that the Government needs more money with the passage of time. But should the increase be as big as the Government says. Should the taxes and rates come all at the same time?," he said.
The government announced a 15 per cent increase in the price of electricity and removed subsidies for petrol and sugar.
Several tolls are expected to increase in the coming year with the prices of train-based such transportation such as LRT and KTM also expected to rise.
Mahathir said the government should follow in the footsteps of businesses by "costing down"
where it could either increase prices or reduce cost when there is competition or when its cost of production reduces its profits.
"All its cost can be examined to determine which are truly necessary, which cost can be reduced, which service can be curtailed or modified," he said.
He said the Government often wasted money because it was not too concerned about the returns on its expenditure, citing the Auditor General's reports that highlight the excesses every year.
Mahathir also asked if the government could introduce any price hikes in stages, citing the 15 per cent increase in electricity charges.
"That is a big jump. It will upset the cost of production of goods which all use electricity, some at a high percentage. Contracts which had already been made will result in losses and this in turn will reduce corporate taxes on profits," he said.
Dr Mahathir also said that the effect of any tax increase should be studied very carefully.
He said that increases in tax must contribute towards increases in the cost of living, the cost of doing business, the reduction in profitability and for the Government reduction in corporate tax on profits.
He recalled when the government lost tax on goods brought in by travellers to Singapore because it was difficult to determine whether the costly watches, pens and jewellery items were bought in Singapore or worn by traveller when they went there.
"The Government decided to remove taxes on luxury goods. As a result tax-free shops sprouted in Malaysia and the Government collected more through corporate tax from these shops than it ever collected in import duty," he said.
In another instance, Mahathir also said that more business was done and more tax collected when the government reduced corporate tax gradually from 45 per cent of profits to 26 per cent.
"Another case is the tax-free incentives for investments. With this investments increased. Indirectly the government could collect from income tax on executives. The nasi lemak eaten by workers increase the businesses of the rice wholesalers and the Government will collect corporate tax from them," he said.
He added that it would be easier for the public to pay increased tax if the percentage is low, or spread over a longer period.
He said the government should examine the tax rates to be introduced with consideration for the cost to people and business.
"It will not hurt the Government too much but it will gain a lot of goodwill from people. They might even remember in the next election," he said.
He added then when French President Francois Hollande decided to raise tax on profits to 50 per cent, people left the country to do business elsewhere.
"Far from collecting more tax, the Government may lose much when other businesses and business people emigrate," he said.