GST – The Nature of the Beast

So, GST is finally here and people have been losing their minds over it.  Mostly, I people have spoken to barely have an understanding of what GST really is.  How do we know this? Simple, ask them how is GST which is at 6% worse than the old SST which was at 10%? Isn’t 10% tax more than 6% tax? But the truth is, GST is indeed a more insidious beast than the old SST but not in the way people have been made to believe by our politicians.  More importantly, I strongly believe that demonstrate all you want, even change the government if you want but the GST will not go away even if there is a change in government.

Goods and Services Tax, Sales and Services Tax, the name is not important, they are just writing on the wall. The old SST was a tax levied on trade: you sell things and make money, you get taxed.  The GST does not tax the traders at all, although they are whining pretty loudly about it. The GST taxes the items and the services, in other words, the GST taxes the consumers – all of US. The traders (sellers, service providers et cetera) are merely acting as collecting agents for the government, that is why they are required to use electronic billing systems.  The tax is on us, on everything we buy, be it goods or services. The electronic billing and GST account is to monitor the traders: to avoid them running off with the governments money.  They in fact no longer have to pay taxes for selling us these things.

The GST however will make the government a lot more money, why? Simple, because there are a lot more consumers than there are traders.  With SST, the government makes money from taxes based on the trading activity which is reported by the traders…. How honestly they report their trade activity is a different matter entirely.  With GST, the traders are simply to take the 6% from the consumer and give it to the government, the electronic tracking measure are there to ensure that they actually give the government all that they take.  The traders actually make 4% more than they did before if they charge the prices at the old price when they added the 10% tax.  Its like this, say a certain item was sold at RM 10 under SST. The trader who sold it actually made RM9 and paid RM1 SST.  So the actual selling price was RM9 although we bought it at RM10 because the government made RM1.

Under GST, the same RM10 item is taxed at 60 sen. If the trader is as honest and as concerned about the public as they claim to be, they should sell the item at the old price minus the SST which is RM9 then add the GST which is at 54 sen thus making the item RM9.54 sen thus bringing the price down by 46 sen BUT you know that is not going to happen because traders are by nature greedy creatures. So that they do is increase the price to RM10 which was the old price plus the SST which they are now no longer paying and thus they make an extra RM1. On top of that they add the GST of 60 sen thus making the new price RM10.60 and you lot going to the streets to demonstrate.

If you noticed, some traders have adopted the strategy I mentioned earlier where the price drops by 4%  but these clever traders now say that they have not increased the price but they have “absorbed” the GST. In reality of course, they are making 4% more than they were before but now they are getting a promotional rhetoric in the process. Very clever of them and very gullible of us, don’t you think?

Is the government to blame for the price hike? Yes, of course, they are because they introduced the new system thus allowing the traders the opportunity fleece us even more, but the traders are now making RM 1 more per item, but do you see the crowds demonstrating them? Why not?

Well, if you make the crowd angry at the present government, you may get more votes at the next election. If you make the crowd angry at traders, you will get less donations from these traders at the next election. Of course if you are an honest politician, you would also demonstrate against the traders who do this but as you can see honesty doesn’t seem to be a common commodity among our politicians.

So, lets say you demonstrate and somehow manage to get a change in government. So you take to the streets to celebrate. Will the GST disappear? Of course not but it will probably seem to disappear.

Remember than the GST is a massive cash cow and governments need money to run its activities, whatever those activities may be.  A newly installed government will be doubly so. “But they promised!!!” You may say. The solution is simple.

First you bring it down to appease your demonstration-prone supporters. Then you hire spin doctors and  eloquent economists to dress up the GST in a more crowd pleasing garb then release it again on the unsuspecting crowd with a different name. I suspect they will use a familiar term borrowed from a Western country like Value Added Tax (VAT) so that they can use the “we are joining the developed nation” rhetoric to fol the crowd into submission as they pay the new tax through their noses.

So, that, my friends, is why I am not going to the streets to demonstrate the GST.  This is my take on the GST, could any of you economists tell me I’m wrong if indeed I am?