Middle-income group will get short end of GST stick, says think tank

KUALA LUMPUR, Nov 8 — Middle-income earners will suffer the most from the implementation of Goods and Services Tax (GST) in 2015 since the consumption tax will eat a bigger chunk of their income, a think tank said today.

While the low-income earners will benefit from cash handouts and high-income earners will save money from income tax cuts, the Penang Institute said that those in the middle will receive neither benefit.

“Using Bank Negara’s estimates of income/expenditure and combining with the latest Household and Expenditure Survey 2009/2010, a study by the Penang Institute took into account the level of income, households’ spending pattern and evaluated the burden of GST – being GST paid as a proportion of household income,” said the think tank’s statement here.

“Despite setting essential items like basic food, public transportation, education and healthcare as exempt or zero rated items, the study shows that GST is a regressive tax.”

A regressive tax is defined as one that takes a larger percentage of income from low-income groups than from high-income groups.

According to its study, households earning RM2,500 per month will be the worst hit, as the GST will cost them 2.67 per cent of their total monthly income.

The lowest income household earning RM605 per month will be paying 2.35 per cent of their income. In comparison, the highest income household earning RM30,185 per month will only be paying 1.32 per cent of their pay.

Penang Institute also noted that certain professions will bear higher burden of GST, such as technicians, clerical and services workers, farmers, and fishermen.

In addition, single and young Malaysians below 24 years old; Bumiputera-led families; and those staying in Peninsular Malaysia will also be burdened more.

While tabling Budget 2014 last month, Prime Minister Datuk Seri Najib Razak announced that Malaysia will finally implement the long-delayed GST at 6 per cent beginning April 2015 to tackle its chronic deficit.

To offset the new tax, Najib also announced that personal income tax will be reduced by 1 to 3 percentage points, depending on the income bracket.

A one-off payment of RM300 under the 1 Malaysia People’s Aid (BR1M) will also be made following the implementation scheduled for April 1, 2015.

Penang Institute today pointed out that following GST’s implementation, middle-income household earning between RM30,000 to RM150,000 per year are set to lose up to RM1,123 per year as they will be paying more for GST compared to any income tax savings.

This in contrast to low-income households will be better off by RM202 to RM488 per year, mainly thanks to BR1M, while the highest income households who earn RM370,000 annually will save by RM3,127 per year from the income tax cuts.

In a blog post on November 4, Performance Management & Delivery Unit (Pemandu) Datuk Seri Idris Jala wrote that the GST will tax the rich the most, as the group also consume the most.

He also pointed out that the GST will have minimal impact on the poor since a range of essential items will be zero-rated or even exempted.

The GST is a consumption tax, meaning all Malaysians will be taxed according to their level of spending, regardless of income. This differs from income tax that is only applicable after a certain salary level is exceeded.

Malaysia’s proposed GST rate of 6 per cent is the lowest in the region, whereas most countries implement a 10 per cent value added tax (VAT).

The tax was first announced during Budget 2005 and was originally scheduled to be implemented in 2007 before it was deferred.

The GST Bill was then tabled for the first reading in 2009 for implementation in late 2011, but was withdrawn during the second reading in 2010 following fierce public resistance.