Wednesday, October 30, 2013

Malays walking into a deep hole

Policy Making & The GST

As I said earlier we are not America or Australia. We are Malaysia. Yes we want to be a negara maju but we have to get there first. To get there we must do the same things that all developing countries did which made them negara maju

When you talk about economic development there is absolutely and completely no such thing as a different 'Malaysian way' of doing things which can bypass or ignore economic principles.  That is the language of dreamers who do not understand economics or the real world. 

Truth No. 1 : To make a profit you buy something low and you sell it high. You can sell it high because you did some value added, you took it from Place A to Place B to sell it or you bought in bulk and then you sold it in smaller quantities. The difference between the higher selling price and the lower cost price is called the profit. Simple. But many people just do not understand the concept.

Truth No. 2 : They also do not understand the time value of money. Money has a time value - put money in a bank and you should be able to earn interest as time passes. The Islamic banking conmen only pretend not to believe this. Because now they invite you to put your money in their "Islamic savings account" and still earn "interest". Only they don't call it interest. They call it al-something.  Whatever they call it, money has a time value attached to it. This is also what makes the world go round.

Too many people who are running the gomen do not understand Truth No. 1 and 2 above very well. 

1. The Gomen has called for further discussion about the GST. Well that is a good step. It means that the MOF, the EPU, the 'con-sultans' at Pemandu, the Khazanah boys and the others who are behind this GST have not been able to think things through completely. Now they want to discuss. After the horse has bolted out of the barn. Better late than never.

Ok takpa - lets discuss. But I can tell you this - they are NOT going to listen to any views that are different from their own. I just heard from a friend who is a communications advisor that the MOF does NOT want to meet the Bloggers (for example) over the GST. That is your choice. Itu lu punya pasal. I think I know the reason. Their Minister does not ask them too many difficult questions. So there is no need to prepare too hard. 

2. The PM cum Finance Minister says the Congo, Burundi and Myanmar have the GST. So what? 

Here are some questions to ponder. How high up the success ladder do Congo, Burundi and Myanmar sit? Have they become 1st world countries already? Despite GST how much social services have their gomen been able to provide their people in Myanmar, Burundi and the Congo ? How much taxes do their gomens collect in the first place? Has the implementation of the GST made their economies miraculously successful? 

What about the US, Spain and Greece? They are almost bankrupt. There are sizeable citizens movements called "Occupy Wallstreet", 'the "99 Percent" and such which attract considerable support in the US. They are against the collusion between the rich and powerful and the gomen. GST or no GST this happens all over the world.  The rich and the powerful lord it over the poor and not powerful.     

3. The details of the implementation of the GST inside Malaysia are not clear. There are different arguments. I have heard that the EPU, the MOF and the rest of the Gomen are not on a common page about how to explain the GST to the people.

If you do not yet have a common platform, then why did the gomen announce it in the first place?

The KSU of the Ministry of Finance Tan Sri Irwan Siregar Abdullah (this guy here) says that the GST will cause a one time inflationary hike in prices. I believe he also indicated that GST will actually lower the cost of goods and services in the long run. Betul ke bro? Ini ikut Proton School of Management ke? I will do a simple calculation shortly. 



4. The GST is a 'point of sale' tax. That is how it is in other countries like the UK. Everytime a sale happens and the item is eligible for GST, then the tax is paid by the buyer to the seller at the point of sale. The tax is paid by the buyer (thats you and me) to the seller (the shopkeeper or the business). 

The shopkeeper becomes the tax collector for the Gomen. It is now his resposnibility to collect the GST and then remit the money collected to the Gomen according to some schedule. Maybe monthly, quarterly etc. 

This will impose an extra administrative cost and burden on the shopkeeper. He has to maintain records, keep receipts etc. He collects taxes for the Gomen but he does NOT get paid any money for his hardship and his services. Bear this in mind.

With one stroke of the pen the Gomen has outsourced its GST tax collection to all the shopkeepers. Clever dont you think so? But dont forget folks - this is Malaysia. In Malaysia it is always race, race and more race. Do read on.

Now here is a simple GST calculation for selling school uniforms. This is just to illustrate. Feel free to agree or disagree. In this example we will not include any "value added" or even profits to the selling price of the school uniforms. The school uniforms will be sold at cost throughout the supply chain. However we will add the 6% GST.



Step 1 Factory to wholesaler : Say a factory produces school uniforms. They sell school uniforms to the wholesaler at RM100 per bungkus.  Come April 2015 they must add 6% GST. So the price from factory to wholesaler is now RM106.  The wholesaler's purchase cost has now become RM106. And it is hoped that the factory will remit the extra RM6 GST to the Gomen. The factory has become the GST 'tax collector' for the Gomen.

Step 2 Wholesaler to retailer : The wholesaler then sells the uniforms to the retailer. To keep the illustration simple, lets say he sells it to the retailer at the same price he bought it from the factory ie RM106. No profits. But he too must add 6% GST. So the wholesaler's price to the retailer is RM106 plus 6% = RM112.36. It is hoped that the wholesaler will then remit the extra RM6.36 GST that he just collected from the retailer back to the gomen. This is what the Gomen hopes for. The wholesaler has also become the tax collector. 

Step 3 The Retailer sells the uniforms to you and me.  Again assume the retailer sells the uniforms at his cost (ie RM112.36) plus GST.  So that works out to RM112.36 plus 6% GST = RM119.10. This is the price that we the consumer will finally pay for one bungkus of uniforms. The retailer's GST collection is RM6.74. And the retailer has to remit this RM6.74 GST collection back to the Gomen. 

So folks in a simple supply chain made up of three players (factory, wholesaler, retailer) the consumer ends up footing the cost of GST three times totalling RM6 + RM6.36 + RM 6.74 = RM19.10. This is GST taxes alone.  Belum kira 'untung' and belum kira any other 'value added' that may be done to the school uniforms.

The final price of the school uniforms the consumer pays for would have increased by 19.1% to accomodate the 6% GST payable by each member in this supply chain.

Before GST was implemented (like now), the consumer did not need to pay this extra RM19.10 per every RM100 purchase. So the 6% GST has actually become an extra tax of 19.1% on the consumer in a supply chain involving three parties onlyThis is the compounding effect.Why? Because GST is payable at every point of sale. Every time the product changes hands, GST is payable. 

Some people say the GST is only incurred once. Siapa kata? How does that work? Please explain. How do you identify who sits at the beginning of the supply chain and who is the last link in the supply chain? What if the supply chain has more players - 1. factory to 2. stockist to 3. wholesaler to 4. hypermarket to 5. retailer to 6. consumer? It will be 6% GST every step of the way. The compunding effect will be 41%.

How do you identify 'one time GST payment only' if there is value added along the way? The stockist may repackage the product. The wholesaler may do bulk breaking. GST must be added at every step of the way.

So folks with one stroke of the pen the gomen has imposed an extra 19.1% tax on the people (in a three party supply chain). Clever isnt it? And you thought it was only 6%. 

And this extra tax is levied on everyone. Presently those earning less than RM3000 per month are exempted from paying income taxes. Now the GST impacts everyone - rich and poor alike. Even the poor must pay tax. 

And for those who pay tax - since the income tax has not been drastically reduced it means that your tax burden has actually increased

The Gomen says they will reduce the personal income tax by a maximum of three percent. Big deal. Say you are already in the 20% tax bracket. So now you have to pay another 19.1% GST taxes for the goods that you buy (in a simple three party supply chain). That means you now pay (in numbers) up to 39.1% in income taxes and GST taxes.  

There is no GST on food. They say this will help the poor. Bagus. But the rich people also eat the same food. Fish, vegetables, meat, chicken etc. There is no GST on food for the rich as well. Maybe now the rich will eat more food. Why? Because they will become richer. Do read on.

5. Why should you - the end user - foot the bill for 6% GST to your retailer, 6% GST to the wholesaler and 6% GST to the manufacturer just to buy school uniforms for your child? As the end user you end up paying for everything.  Because the manufacturer, wholesaler and retailer will not pay for it. They pass on the cost of the GST to the end user ie you. You pay for their GST at each level of the supply chain.

In Japan to overcome paying GST incurred multiple times like this, Japanese housewives have set up buyers cooperatives. They pool resources to buy their needs directly from the factories or the wholesalers - by passing the middlemen. This is to suffer less GST. Ultimately this will happen here as well.  

And if consumers go direct to the producers, this will kill off the small retailers and the middle men even more. And this is where the race issues will come up. Kedai-kedai runcit Melayu yang baru nak survive semua akan kena negative impact. Remember in Malaysia it is always race.

6. Now here is the interesting part. This part will sound more racist and I apologise to my fellow Malaysians if it comes across that way. But I am merely stating things as they are in this country. (And that is also why you read my Blog).  It is a simple fact that the non bumiputras (one race) dominate the economy in the country. It is NOT their fault if they run the economy - they are the business community. They work hard.  

Now it is another fact that this community (plus also many other people, including me) complain that the gomen takes the taxes that they pay and uses it to splurge on extravagant spending, sustain the Umno-putraism and the cronyism. The non bumiputra business people who pay taxes are very angry at the gomen. (Read the comments in this blog - this is a daily complaint).

They are also strongly anti-the-Malay-led BN gomen - as evidenced by the results of the last General Election. The large majority of non bumis want the Malay led BN gomen kicked out. These are simple facts. Everyone knows this.

Now imagine the same Malay led BN Gomen has outsourced the collection of GST taxes to this same non bumi business community who are angry at the BN Gomen for burning their tax money.

The BN gomen is going to ask the non bumiputra shopkeepers and businessmen to be their tax collectors !!  And to make things even worse, this GST thing will impose extra administrative costs and burdens on all their shopkeepers and businessmen. Somehow this does not sound like a very clever thing to do

Secondly, by absolute numbers who are the largest number of consumers and buyers of goods and service in this country? It is the Malays and the bumiputras. This means that Malays and bumiputras will (collectively) be the ones paying the most GST tax. 

So folks, the community which runs the economy - the shops, businesses and factories - has now been tasked by the Malay led BN gomen to collect the GST taxes from the Malays and others. 

And they are supposed to hand over all the GST they have collected to the same Malay led BN Gomen that they do not like. Folks dyou think all the GST taxes they collect will reach the Gomen? I dont think so.

Lets be more "multi-racist". Let me tell you about one nasi kandar shop which does about RM18,000 collection per night. But he hardly declares RM5000 sales per day. Of course most of their customers are Malays.  

I dont know if restaurants are exempted from GST (the GST definition of "food" may not include eating at Tony Romas or at the kepala ikan shop). This means this nasi kandar guy will collect 6% GST on the full RM18,000 sales but only remit GST on RM5000 or less.  He keeps the GST on RM13,000 (about RM800 per night). This is going to happen. 

This means the Malays and bumiputras (the salary earners and consumers) will be paying 6% GST to the largest business community in this country as well as to the nasi kandar and kepala ikan shops with the belief that this money will all go to the gomen who will then use the money for their benefit. What if the 6% GST does not all reach the Gomen?

My fear is the "does not reach the Gomen" portion will be massive. 

Why do I say so? Because this is Malaysia ok. We are a Third World country. These types of things happen on a gargantuan scale. You know, I know, the neighbours cat knows that too many people hide from paying their taxes. Or they try to avoid from paying taxes. 

In Malaysia this problem is magnified. In this country it is race, race, race. 

The business community is largely of one race. 

The predominantly wage earner and consumer community is of one race (Malay & bumiputras). 

So over time the Malays & bumiputras are going to pay more GST taxes - up to 19.1% (in a three party supply chain - as I have explained above). Plus they must also pay income taxes. The Malays and bumiputras will become poorer.

They will pay these GST taxes to the business community (non bumiputras) who run the shops and businesses. The non bumiputra business community will get more cash flowing through their hands. They will get richer.  

Say there is massive 'kelemahan' in the system and they do not remit all the GST taxes they collect to the Gomen.  The Gomen will lose tax revenue. The Gomen cannot carry out as many programs.

Think again ok. Itu pasal I always say in Malaysia everything is always race, race and more race. 

We cannot simply implement some text book theory or some con-sultans 'mee segera' ideas and paint every single Malaysian with the same brush. Tak boleh.  If I was a conspiracy theorist I would say that this GST was a non bumiputra conspiracy to impoverish the Malay bumiputra consumers and defraud the Gomen at the same time. 

I know it is not. I am not accusing the non-bumis of any conspiracy. The GST is not their idea. But I have a feeling that is how it will turn out. 

Who wants to pay taxes? 
Especially to a Gomen that wastes so much money? 
Who wants to incur expenses collecting taxes on behalf of this same Gomen? 

If you thought that this GST is going to make your life easier, that it will make the flowers bloom and the birds sing, well what can I say? Pull your head out before its too late. 


Outsyed The Box

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