PETALING JAYA: Putrajaya would not need the extra income from the goods and services tax (GST) if it got rid of wastage and corruption that cost the government up to RM40 billion a year in losses, said an anti-graft group.

The Centre to Combat Corruption and Cronyism (C4) said that various studies have estimated that the government loses between RM23 billion and RM40 billion a year due to leakages and mismanagement highlighted in the annual Auditor-General’s (AG) reports.

In comparison, Putrajaya is expected to collect RM23.2 billion this year from the GST. But it will only earn RM690 million in net income from the tax which replaces the sales and services tax (SST), according to Prime Minister Datuk Seri Najib Razak’s Budget 2015 speech.

Najib had said the government would earn RM690 million in net income from the GST after deducting RM13.8 billion that was lost from replacing the SST and RM3.8 billion from GST-exempted goods. Of the remaining RM5.6 billion, RM4.9 billion would be spent on aid programmes, such as the 1Malaysia People’s Aid (BR1M), leaving the government with only RM690 million.

C4 co-founder Cynthia Gabriel (pic) said if the government could cut the amount of money lost through leakages by one third, it would not need to impose the GST. “Instead of repairing its fiscal weaknesses and its mismanagement of public funds, the government is shifting this burden to consumers by charging them a new tax.

“The GST is not suitable for the Malaysian context because it will not solve our socio-economic ills,” Gabriel told a press conference as Putrajaya announced that it will stick to the April 1 deadline for the new tax.

In the Budget 2015 speech, Najib had said goods such as fresh food, public transport services, the first 300kw of electricity, education and more than 2,000 medicine brands would be exempted from the GST.

Along with the GST, the government would reduce individual income tax by 1% to 3%, Najib said.

C4 director Richard Yeoh said the group was not against the GST but the tax would not be fair to consumers if the government did not improve its management of public funds.

“It could also have introduced the GST in more gradual stages. But at this point, our budget deficit is high and this is a bad economic year with prices increasing.

“Instead of adding another burden on taxpayers, it should defer it,” said Yeoh.

Gabriel said that unlike other countries in the region which had implemented the GST, such as Singapore in 1994 and Thailand in 1992, Malaysia was doing it while Putrajaya has been registering a budget deficit for several years in a row. “In comparison, Singapore and Thailand were registering budget surpluses a few years before they introduced a tax similar to the GST,” she said, adding that C4 had completed a study and position paper on the issue.

The group viewed the GST from the perspective of a body tracking public spending as part of its campaign to fight corruption and to improve transparency and accountability.

Gabriel said Putrajaya must set up a fiscal oversight watchdog and reform several laws in order to convince the public that the revenue from the GST would be spent responsibly.

The first proposal is for a body that is supposed to complement the Auditor-General, by tracking how the government is spending money throughout the year. “The Auditor-General, unfortunately, can only track public funds after all the money is spent. We need another body that tracks how the yearly budget is executed.

“This has been done in Canada and the United Kingdom,” said Gabriel.

The other proposals are for making the Malaysian Anti-Corruption Commission and the AG more independent and introducing a Wastage Prevention Act. “The new law would make it a crime for people to be involved in activity that promoted wastage of government funds. We must also make misuse of power and public funds a crime,” Gabriel said.  — The Malaysian Insider

This article first appeared in The Edge Financial Daily, on March 11, 2015.