SST trumps GST, Dr M tells why

(FMT) – Dr Mahathir Mohamad has defended the decision to revert to the sales and services tax (SST) some eight months after the goods and services tax (GST) was abolished, despite complaints that the move has not succeeded in bringing down prices.

Speaking on a wide range of topics in an exclusive interview with FMT recently, the prime minister said the cost of living was connected to wages.

“It is easy to bring up the cost of living. All we have to do is pay higher salaries. Immediately the cost of production goes up, the cost of services goes up,” he said, when told that prices of daily items have generally not changed or have gone up in the last three months since SST was reintroduced.

“But when you want to bring down, you have to bring down by reducing salaries. This is not very welcome. So we can’t go that way.”

Instead, he said, bringing down living costs needed the efforts of the private sector, including improvement in productivity without raising salaries.

“That way, the cost of whatever you produce or whatever service that you get would be lower because productivity is higher. So we have to find ways and means to improve productivity.”

He said manufacturers could implement more automation in their process.

“Of course this means initial expenditure on capital to acquire all these things, but if you use more robots, you can produce more without increasing costs due to wages going up. These are things that the private sector itself must do.”

But he acknowledged that it would still be a long time before prices could come down.

“Initially, the rise in cost of living will not be very fast. But there will come a time when it stops as productivity goes up, and that’s when the cost of living will go down.”

‘Not all the money belongs to government’

Mahathir acknowledged the complications in bringing down the cost of living but said the situation still did not justify the argument that GST was a better tax regime.

For a long time, he said, the country’s economy had survived without GST, a consumer tax introduced in 2015 amid heavy opposition.

The government of Najib Razak argued at the time that the tax would mean cheaper goods, as the 6% rate was lower than the SST’s 10%.

Coincidentally, the oil price took a sharp plunge between 2014 and 2016. The government said then that the GST had saved the economy with some RM46 billion in revenue, making up for the lost income from Malaysia’s oil exports.

When asked why the Pakatan Harapan government had gone ahead with its promise to abolish GST at the risk of losing billions in income, Mahathir said that argument was flawed.

“They gave a figure showing that the GST actually increases government revenue. It is not true,” he said.

He said the nature of the tax was multi-level, implemented at various stages from the manufacturer to the end consumer.

“So there are three or four layers where tax is collected. But the government promised that if the tax is collected twice, the government will pay back.

“What Najib’s government did was that the money they were supposed to pay back, they did not pay back. They put it into the consolidated funds, so they gave the impression that the collection from GST was big.”

However, he said, after taking into account the amount to be refunded by the government, the revenue from GST was actually not big.

He said manufacturers had already factored in the GST cost when they fixed retail prices, adding that this was because they could not wait for the GST refunds owed to them to be returned in time to recover their costs.

“(So) the cost of GST remains there, and the government appears to have more money, but that money is not government money. It’s supposed to be paid back by the government, but they did not pay back.

“And these people, because they were not paid back, retained a higher price because several (layers of) tax were paid more than once. That affects the cost of living,” said Mahathir.

He said under SST, there were very few instances of double taxation.

He said although SST collected less, its total reflected the real revenue for the government, unlike the billions of ringgit collected under GST which included money owed to the people.