Taxation

1. Introduction

Tax is basically imposed on an individual or corporations that is enforced by the government. If failed to pay tax, one is punishable according to law. There are different types of tax which are direct tax includes real property gain tax (RPGT), withholding tax, Stamp duty Personal income tax, corporate tax petroleum income tax. Where else, indirect tax includes Goods and service tax (GST), excise duty, import duty, export duty (Lau, 2014). Tax is consider the major source of government revenue in a country which contributes to the development and prosperity of a country; and also benefit the benefit both the citizen and business as a whole. Raising a government’s revenue in terms of different types of tax as mentioned above (UKEssays, 2016).  So, taxation is an important factor to the government, country and the citizen. The discussion on how tax is impacted and its relationship with national development, national debt, corruption and social welfare; and on how the issues have affected taxation will be explain.

2.0 National Development

National development is explained as the ability of a country to develop the social welfare of the people. For instance, providing social facilities such as quality education, transportation infrastructure, medical care and etc. National Development (NDP) was introduced by Malaysia’s formal Prime Minister, Tun Dr. Mahathir bin Mohamed. The main objective of the implementation of National Development to improve economic and into a develop country. Moreover, economic and social development can be achieve with a strategic National Development. However, national development also need the support of tax to succeed (Suhaimi, 2013)

         For a country, taxes are the major source of revenue for development plans and financing its budget. To reduce the gap between the lower income group and the high income group, fiscal policy and taxation method used and increase investment growth and economic growth. To lead to a higher living standard, tax revenue are used increase the rate of economic growth and per-capital income. GDP is used as a measurement of economic growth (Yusof & Bhattasali, 2008).

1. Gross domestic product (GDP)

GDP is a broad measurement of a nation’s overall economic activity where it includes public and private consumption, investments, net exports and government expenditures. GDP is usually used as an indicator of economic health and living standard. In 2016, Malaysia’s GDP on the 1st quarter (first 6 months) is at 4.1%, which has decrease compared to 2015 it was at 5%. It is expected to remain on the existing growth trajectory of 4%-4.5%. A declining GDP means the economy of Malaysia has a Negative growth rates which is the result of decreasing wage growth and overall contraction of money supply. *refer to appendix table 1.  However, GDP in the 2nd quarter is also increasing gradually, which helps to increase economic growth and improve national development. *refer to appendix table 2 (Kok, 2016)

However, implementation of GST has some benefit of GDP, because it help to increase profitability in business which eventually increase GDP and investment growth. Malaysian government is reliant on the tax revenue, the relationship between government spending and tax revenue is positive, because it will eventually increase government revenue.  (Suhaimi, 2013)

1. National debts

National debt is where a country’s government has borrowed a sum of money for various reasons. There is an interest that need to be paid for the amount of borrowed money. National debt increase when the government did not collect sufficient revenue to cover its expenses. Government spends the borrowed money to develop the country such as building roads, bridges, military and etc. To cover the expenses, government collect revenue from citizen and companies such as income and corporate tax, and revenue is also collected form the fees that the government imposes including passport and visa, student loans and etc. Taxation palys an important role, since tax revenue helps to decrease national debt. (Koba, 2011) The national debt currently is around at RM647 billion. However, the number does not stops there, it is increasing by every second (National Debt Clocks, 2015). GST is one of the tax affect the country and the consumer in a different way.

1. GST

GST is a consumption tax applied on goods and services covering all sectors including production and distribution stage in a supply chain (Shire & Clarke, 2016). Goods and Service Tax (GST) was implemented and effective from 1 April 2015 with a fixed rate of 6%; and certain necessary goods are exempted from GST (Ariel, 2014). The previous consumption tax Sales and service Tax (SST) is replaced by GST. However, GST reduce numbers of indirect taxes. Due to how SST is implied, consumer are paying double tax including at the manufacturing and service stage.

3.1.1 The effect of GST on Consumer

Due to the indirect impact of GST, private consumption is falling because households are having less money. (Naidu , 2015)  The tax burden eventually falls on the consumer and not on production, because GST is a consumption tax. Moreover, GST only result in the increase of prices in certain products (Palil & Ibrahim, 2011). Due to introduction of GST, Lower income group has a more profound impact opposed to higher income group and reduce the ability for lower income group to purchase goods and services.

3.1.2 The effect of GST on the Country

The positive side of GST is that the government is able to maintain its revenue base and the economy because the macroeconomics polies are stable which eventually attracts international business to invest in Malaysia (Naidu , 2015). GST is introduced to aim at diminishing the country’s increasing budget deficit and improve revenue collection. The main objective to implement GST because it is comprehensive in scope where it covers a wide-range of goods and services and it is a stable source of a nation’s revenue (Ilias & Abdul Mansor, 2013). Besides that, the government needs to build surplus for economic downfall in advance. If the country continue to raise debt to finance its deficit, the country will go into a debt trap because the country has been stuck with fiscal deficit for more than a decade (Palil & Ibrahim, 2011). It also a method that diversified government source of income, and provide the government with a constant stable flow of income. Plus, it eventually increase the government’s ability to raise public services and improve economic stability.