Closing the loopholes that capitalism breathes

By Medecci Lineil

In what The Borneo Post describes as “GST not a burden, people assured”, special adviser to the Minister of Transport, Tan Sri M Kayveas, during a recent visit to Sarawak, made two statements claiming the goods and services tax (GST) will only be burden to those who are trying to avoid and run away from paying taxes.

He told the press that the present war is not the government against the people, but it is the people against business operators who don’t want to be honest in their business and who don’t to pay taxes for profits they are making.

First of all, it is perfectly normal for people to avoid and run away from taxes because no one likes paying taxes, i.e GST.

And not all businesses have the same ability to pay GST. It is very burdening to some of them.
Taxes are a coercive imposition in nature. In other words, if you refuse to pay GST, you will be thrown into jail.

Why criminalize such refusal and avoidance? Why legalize a law that coerces people and which they don’t like? How much taxes are we required to pay? Well, as much as the government demands, obviously.

Oversimplifying the search for individual or corporate villains will not assist in remedying the underlying problems.

This will not necessarily affect the people who are running away from taxes. In fact it may fuel deeper existing conflicts between tax payers and tax consumers (using Calhoun’s analysis) or even encourage them to find some creative mechanism to counter GST in business activities.

Secondly, government needs to extract extra money at a time of tight public finances and a struggling economy. Therefore, to sustain the increasing cost of government operations, they declare war against business operators and profits they are making through GST.

GST is a war to steal extra cash from their own people.

For instance, an international seminar on GST which I attended in September 2014, Finance Ministry tax division undersecretary Datuk Siti Halimah Ismail said the contribution of indirect taxes, such as sales and services taxes to the government’s revenue had decreased significantly over the past few decades.

Oil revenue made up 30.6% or RM67.6bil of total revenue for 2013, but as petroleum is a depleting resource, she said new sources of revenue were needed.

Therefore, the proposal to implement GST is laughable. It is like asking someone review the method of stealing after being unsuccessful in the previous attempt.

From the perspective of the government, GST is a near perfect tax and a revenue generating machine. Just few days ago I listened to a local economics professor on TV commenting on the heinous ability of GST to manage the details of business like profit margin and every business’s buying and selling.

The GST makes every registered business an agent of Jabatan Kastam Diraja Malaysia. So nothing escapes the tax, including the underground economy (unregulated, unreported, unmeasured, unobservable and unregistered business activities) which is estimated as between 20&-30% of the country’s gross domestic product.

The underground economy is including my father selling pineapples, my wife baking cupcakes and my friend selling pirate VCD/DVDs and fire crackers. With GST in place, it is not just recouping the lost taxes, but also these business activities will also be affected or maybe put out of business. What happen to entrepreneurship?

I am afraid whenever dissatisfaction rises, immediately people will point the finger at business communities, while the government escapes the blame and use the profiteering Act to assure people’s confidence in its implementation.

Any loopholes such as the underground economy and evasion where we are allowed to keep some money is treated as illegal. In contrast Austrian economist Ludwig von Mises said, “It is through these loopholes that capitalism breathes. Thanks to these loopholes this country is still a free country.”

First published at The Malaysian Insider on March 30, 2015.

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