Why goods and services tax is vital

MALAYSIA - There are many more myths than facts about the goods and services tax or GST which the government plans to introduce not long from now. I will attempt to dispel some of the myths associated with this tax and put the GST in perspective.

The first thing to remember is that the GST is only one of measures that the government will be taking to overhaul the financial system of the country to find new sources of revenue and improve the efficiency of tax collection. Other measures are being undertaken to reduce corruption, to reduce waste and create highly transparent procurement processes among others.

GST is part of a holistic programme of improvement for the government which will be combined with these other measures to help us on our way to achieve high income and developed status in a sustainable and inclusive manner. That target is getting per capita income up to US$15,000 (S$18,500) by 2020.

Our current tax base is way too narrow - we depend too much on income tax, both individual and corporate. Out of some 29 million in people in Malaysia, only less than two million people pay income tax.

We cannot afford to go back to these same people and corporations and ask them for more and more tax - we can only hope that as their income increases, they will pay more tax. In fact, if we don't widen the tax base, there is absolutely no room to cut income taxes further.

For various reasons, including the fact that much income goes unreported, we need to broaden the tax base. A value-added tax such as GST, where a tax is paid on every step in the value-added process is a consumption tax and therefore taxes those who can afford to spend.

If you are making money but don't pay tax for various reasons, you still want to spend on the things that you want to have and to use. And when you consume, the government can capture a part of that as income for itself through the GST.