Thursday, April 16, 2015

GST hits the low-income group hardest

6:54AM Apr 16, 2015
By S Ramakrishnan

The implementation of the goods and services tax (GST) seems to have hit a snag in the service sector. Service providers are now required to display their collective agreement in order to be able to exact service charges.

The service charge has been there for umpteen years but the Customs Department did not bother about it. But when it hinders the implementation of the GST, the service charge becomes an issue. Now, restaurants and hotels have to display their collective agreement publicly to qualify for charging 10 percent service charges.

Many workers in the hotel and restaurant sector are not union members. This sector is dominated by foreign workers, so Malaysian workers in this industry have very little say. Therefore, as a responsible body, the Customs Department must ensure that all service charges collected on behalf of the workers go to the workers. Even when there are no formal collective agreements, service charges collected must be distributed among the workers.

GST should not impede the extra income earned by low-income workers. This group is already hard-hit by the rising cost of living. Minimum wages remain at RM900. Unless this group tightens its belt further, they risk defaulting on their instalment payments.

The government’s Bantuan Rakyat 1Malaysia (BR1M) RM950 per year is far less when compared to the increase in prices due to GST. Every business, whether or not it is a collection centre, has increased its prices, citing GST payments.

It is common knowledge that wages have not kept up with productivity of labour since 1996. Besides wages make up only 28 percent of national income compared with Singapore 42 percent. The fact that only 6.44 percent of workers i.e. 79,8941 out of 12.4 million workers are members of trade unions speaks volumes about the decline in collective bargaining of workers.

Forty eight percent of Malaysian workers earn less than RM1,000 per month. Therefore the 10 percent service charges to be distributed among workers must be retained and the Customs should not threaten to abolish them.

Informal economy forms 31pct of Malaysian economy

According to the World Bank, informal economy constitutes 31 percent of the Malaysian economy, almost double the percentage in other Asian countries such as Vietnam (15.6 percent) and Singapore (13 percent). This sector is too small to register as a collection centre and, therefore, has to absorb the 6 percent GST itself.

The informal sector also faces a high cost in sales, thus reducing its profit margin. If the registered GST collection centres cannot compete with the unregistered informal sector, more resources will be channelled into the informal sector, leading to reduced collection from the GST.

While the working class and informal sectors are facing the brunt of an increase in the cost of living and a higher cost when doing business, the Domestic Trade Minister, Hassan Malek, says that GST collections will be used to construct roads, mosques, temples, schools, in the areas of human capital development and education, and for infrastructural repairs.

The talk sounds good, but Malaysians are flabbergasted and disappointed that the GST will also be used to repay debts incurred due to the high cost of government procurement and the guaranteeing of reckless loans taken by government-owned companies like 1Malaysia Development Berhad (1MDB) and Pembinaan PFI.

Essential utility services like the supply of water, electricity and toll highways are privatised and awarded to Umno cronies who reap risk-free profits. Veteran Umno politician Tengku Razaleigh Hamzah says that these days, Umno divisional leaders as well as parliamentary members earn up to RM50,000 a month, some even hundreds of thousands, and get lucrative contracts, too.

The prime minister wants people to be frugal and spend less but the government overspends and has had a budget deficit for over 16 years, yet still requests for a supplementary budget at every parliamentary sitting. The government must walk the talk before preaching to others.

S RAMAKRISHNAN is a former senator.

~ Malaysiakini

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