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“Implementing Goods and Services Tax in Malaysia”. Lim Kim- Hwa & Ooi Pei Qi 30 Oct 2013 Structure. Key Issues. Key Issues. Key Issues. Household Impact. Latest Household Expenditure Survey (2009/2010).

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Lim kim hwa ooi pei qi 30 oct 2013 www penanginstitute org gst

“Implementing Goods and Services Tax in Malaysia”

Lim Kim-Hwa & Ooi Pei Qi

30 Oct 2013

Household impact
Household Impact

Latest Household Expenditure Survey (2009/2010)

  • Average household pays 3.80% of expenditure or 2.52% of income

  • 0% rated and exempted items

  • 6% standard rated items

  • Clothes & footwear

  • Restaurants & Hotels

  • Household equipment

  • Tobacco & alcohol

  • RM 90 per month

  • Essential food

  • Basic non-value added items

  • Healthcare

  • Public transportation

  • Education

Gst rate
GST rate (%)

  • Health, Education (0.00%)

  • Food and non-alcoholic beverages (1.66%), housing, water, electricity, gas and other fuels (1.42%)

Spending pattern  GST payment

  • Transport (5.39%), recreation services and culture (5.73%), miscellaneous goods and services (5.74%)

  • Restaurants and hotels, furnishing, household equipment and routine household maintenance, clothing and footwear, communication, alcoholic beverages and tobacco (6.00%)

Higher gst burden if you are
Higher GST burden if you are:

  • Low and middle income

  • Single person household

  • Young (less than 24 years old) household

  • Bumiputera-led households

  • Clerical workers, skilled agricultural and fishery workers

  • Peninsular Malaysia

Higher gsti low and middle income household
Higher GSTI: estimates)Low and middle income household

Worst hit: monthly income RM2,579

Higher gsti single person household
Higher GSTI: estimates)Single person household

Higher gsti young less than 24 years old household
Higher GSTI: estimates)Young (less than 24 years old) household

Higher gsti bumiputera led non malaysian household
Higher GSTI: estimates)Bumiputera-led & non-Malaysian household

Higher gsti clerical services workers farmers fishermen
Higher GSTI: estimates)Clerical & services workers, Farmers, Fishermen

Higher gst contribution peninsular malaysia
Higher GST contribution: estimates)Peninsular Malaysia

O ur interactive spreadsheet www penanginstitute org gst
O estimates)ur interactive

Budget s measures income tax cuts br1m gst
Budget’s measures: estimates)Income tax cuts, BR1M & GST

Income tax savings br1m gst middle income worse off
Income tax savings + BR1M – GST: estimates)Middle income worse off

Middle income: worse off

Budget households with current annual income rm 30k 150k to pay more tax
Budget: households estimates)with current annual income RM 30k- 150k to pay more tax

More tax

Mitigate negative effect on middle income 1 our proposed i ncome tax rates
Mitigate negative effect on middle estimates)income 1: Our proposed income tax rates

Bigger cuts at lower income

Smaller cuts at higher income

Expenditure efficiency improvements to make up any revenue shortfall

Budget vs our proposal income tax savings br1m gst
Budget vs. Our Proposal: estimates)Income tax savings + BR1M – GST

Highest income: less better off

Middle income: less worse off

Total gst revenue from households
Total GST Revenue from Households estimates)

  • Perfect condition: RM 6.5 billion

  • Simplify tax administration

  • (GST register if > RM 0.5m sales)

  • Practical condition: RM 6 billion

  • GST Fraud?

  • Realistic condition: Less than RM 6 billion

  • Simplify tax administration

  • (GST register if > RM 0.5m sales)

Gst revenue source
GST Revenue estimates)Source

Mitigate negative effect on middle income 2 make gst less regressive
Mitigate negative effect on estimates)middle income 2: Make GST less regressive

Why target transport t ransport as of income increases as income rises
Why target Transport? estimates)Transport as % of income increases as income rises




Raise same amount of revenue but make gst less regressive
Raise same amount of revenue but make estimates)GST less regressive?

Difficult – middle income groups still pay higher GSTI

  • Income Tax rate cut, refundable tax credits

  • Simple, effective tax regime

  • High GST rate on only some items

  • Raise billions

  • Multi-tiered GST

  • Broaden tax base

Base 6 vs multi tiered high gst rate on selected items
Base 6% estimates)vs:Multi-tiered, High GST rate on selected items

Cannot make middle income pay less GSTI than highest income

Gst is a strongly regressive tax
GST estimates)is a strongly regressive tax

  • Higher income households still pay lower GSTI

  • GST is intrinsically regressive

  • Middle income households still pay higher GSTI

  • Hence, need income tax reduction, refundable tax credits/rebates

Why was gst predicted to be in the budget
Why was GST predicted estimates)to be in the Budget?

  • High debt

    • Sovereign: RM 519 billion (Q2 2013)

    • Household: 80.5% GDP (2012)

  • Foreigners hold

  • RM 126 billion

  • Malaysia Government

  • Debt

  • Low US interest rates about to end

    • Now: 2.6%

    • 1999-2008: 4.7%

  • Credit rating downgrade risk

  • Fiscal deficits since 1998

  • First Budget after GE13

GST Introduced

  • Government’s credibility

Foreigners holdings in malaysia government debt
Foreigners’ holdings in estimates)Malaysia Government Debt

Jul 13:

RM 126 billion

Jun/Jul 2013: Foreign capital withdrawn

Jan 05:

RM 9 billion

Foreign capital withdrawn borrowing costs increase 3 4 4
Foreign Capital withdrawn estimates)Borrowing Costs Increase (3.4%4%)

Jun/Jul 2013: Foreign capital exert significant influence

Significance estimates)

  • Sovereign Debt: RM 519 billion (Q2 2013)

Low US interest rates end

  • Fiscal Deficit Deteriorates

  • 1% higher interest rate

  • Credit Rating Downgrade

  • Slower Economic Growth

  • Additional RM 5.19 billion interest

  • Borrowing Costs Increase

  • Foreign Capital Withdraw

Wider implications
Wider Implications estimates)

  • Inflation per CPI

  • Spike up 1.32% additionally (ignore secondary effects)

Credit rating agencies & foreign capital reassured?

  • Measures sufficient to insulate Malaysia from QE taper risk?

  • Economic growth

  • Higher domestic spending due to BR1M and front loading of spending

  • Ringgit uncertain

  • Fiscal reform, wider tax harmonisation

  • Property prices

  • Overall effect uncertain

Narrowing window for fiscal reform