Do you hate getting small change in the form of various five-cent coins when you pay for your groceries? Wouldn’t it be easier if everyone charged a round figure? That’s easier said than done as we have tax and even more, various taxes that are applied to the goods we purchase – hence creating an uneven price tag and that loose change we so often put in the donation box.
In Malaysia, there are two taxes that are most commonly found in our bills. One is the Government Sales Tax of 10% which applies to most goods manufactured or imported into Malaysia. For example, when we purchase a beautiful imported dress, there is a Sales Tax imposed on it. This tax goes to the government as a charge for purchasing imported goods and in turn, is used to help spur the local economy.
On the other hand, when we eat at a cafe, the Government Service Tax is at 6% which is the government tax on consumers. In addition, there is a service charge of 10% which goes back to the service staff at the cafe. The reason for this service charge is that unlike other countries that practice the “tipping” system, Malaysians rarely tip. This charge acts as an extra bonus that goes to the staff.
Now going back to the Government Sales Tax of 10% and Service Tax of 6%, these two taxes have been around for a long time and many do not complain about these taxes, We may accept it as “normal” for us to be taxed, or we are simply ignorant to the current tax regime. We, too, pay the 10% service charge even if the service is not that great.
In reality, taxes apply to many goods and services. Sometimes, we forget how often we pay taxes and sometimes
we complain about those extra charges. Of course, the one tax everyone knows about – and probably isn’t a fan of – is the income tax. This tax applies to most people who earn over a certain income.
For instance, a person who earns RM5,000 would be liable to pay about 14% to 15% of his income in the form of tax in Malaysia. The rate of tax paid varies from country to country.
But while many would lament the fact that they have to file their taxes in April, taxes are an integral part of life, governance, and the economy. In fact, when you look deeper into the issue of taxation, you will see that the real person who benefits from tax is you!
There is a long history to taxation – and has proven itself to work – it is an integral part of civilization that helps form the backbone of a government. Simply said, tax is the key to governance that works well and is here to stay. But to embrace tax, one must first understand how it came about and why it is in place in all countries.
Taxes have been around since the Ancient Egyptian era in 3000- 2800BC. Records show that Pharaohs would tour the kingdom and collect taxes from the people. Taxes differed from kingdom to kingdom. Ancient Egyptians paid taxes based on the wealth of their crops. In India, a land fabled for gold, the tax was in the form of gold dust. Babylon, with its startling mixture of commodity, paid in silver talents (an ancient unit of mass). The Persian Empire (later the Roman Empire) paid in grains.
As trade developed and tax was refined, regulated tax systems emerged to correlate with income and supposed productivity. This a universal practice generally engaged by civilizations.
From an economic perspective, tax is able to transfer wealth from land owners and businesses to the government far ruling purposes and economic welfare. Governments, tasked with the responsibility of building a nation, feeding an army, and repairing damages in a natural disaster, needed the income from its people to run its programmes. This is understood by the public and support is expected from loyal citizens.
Among the responsibilities of a government – which is possible with the support of taxes – is the building of schools for its children. Education is vital for the growth of a nation and schools and good teachers are costly. The general public would be hard-pressed to find a personal tutor and logistically, there would not be enough teachers for personal one-on-one teachings of pupils.
Schools are the only solution and this remains a government responsibility as part of its need to ensure continuous leadership for the state. After all, just imagine where you would be without education by the government?
Moreover, governments need funds for basic infrastructure such as building roads that connect villages, towns, and cities to each other – thus enabling trade and commerce and the exchange of needs. Without the government’s hand in building roads, no mere mortal would able to single-handedly connect thousands of miles with granite. While we have survived on sandy trails in the past, the emergence of motorised vehicles and the difficulties in sea trade made it a necessity to build bigger and better roads.
Governments are also behind the structuring of public buildings such as market places where the public trade their wares economic prosperity and for their daily needs as well as housing. The crude methods of building one’s own house belong to the past and planned townships are the order of the day. With the progress of modernity, some houses equipped with proper sanitation systems. The cost of building a house is too much of a burden on the average man and government assistance makes it possible to live under a roof.
With new inventions and innovations, the government is now the bearer of water pipes – which have to be cleaned and processed – and electricity poles as well as telecommunications lines. These systems which run for thousands of miles, sometimes across rivers and oceans, demand an extensive budget of which no single family unit can afford. Who else can ensure we have these basic needs if not for the people whom we elect as our state representatives?
With these duties for the nation, it is no wonder that a country requires the helping hand of its people in the form of a taxation system. For as long as kingdom leadership and governments have existed, taxes have played a role in making life possible. And as long as governance is required to lead the people into the future, taxes will continue to exist in tandem with our need for development.
There is more to taxes than just development. From the economic development perspective, taxes play a role in reducing economic inequality and increasing economic efficiency. This occurs when goods that are taxable are traded less in view of the tax burden. One good example is polluting goods such as fuel. The reduced trade due to taxation factors into salvaging the environment. Hence, the tax is able to regulate what is traded.
The local trader gains when imported goods are taxed – encouraging more people to buy cheaper local goods. This is an essential trade strategy that is used by nations worldwide to protect the interest of its locals.
Tax from imported goods eventually goes back to the government, hence ensuring that for every cent the foreign economy profits, the local government is compensated in a small amount to ensure the regulated flow of currency from the country.
Another instance of good usage of tax is the sin tax levied on alcoholic beverages, cigarettes, and gambling. Added tax burden ensures that drinking, smoking, and gambling don’t proliferate in the country to the extent that it hurts social development.
Youths become discouraged to take up these habits and these activities become contained to a manageable level. The profit from these activities goes back towards rehabilitation, the environment, and various campaigns to encourage healthy living.
Working on the same principle, Malaysia offers tax exemptions for the purchase of books to inculcate the habit of reading. By tweaking tax rules, the government is able to impact society and encourage good habits among its people.
With the obvious benefits that tax has on society, there are various taxes that are put in place. Property tax places a price on owning land or a house as the land is essentially under the governance of a government while business and income tax ensure wealth redistribution from the haves to the have nots. Tax percentage for these are higher for the high income bracket and lower for the middle and lower class. Sales and services tax regulates the economy while inheritance tax regulates the transfer of wealth.
One of the most common taxes in existence is called the Value Added Tax or also known as the Goods and Services Tax (GST). Already implemented in more than 160 countries, this is another tax that been tested and proven to work well in modern economies.
Countries such as Singapore, UK, Australia, and Thailand have long implemented the GST and Malaysia too implemented it from April 2015 to August 2018. It is said that the GST has a better calculation that reduces cost and makes trade even more effective, hence benefiting the people which is why it is adopted by most First World nations.
But is the GST really better for Malaysians than SST especially in the current state of the economy? Do you think Malaysia will adopt the GST again in the future?
Whatever tax system that is implied by the government in Malaysia what’s most important is that it is accepted by many, helps propel the nation’s economy, and most importantly can benefit the rakyat in the long term.