?STATE SALES TAX BILL, 1998?
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?STATE SALES TAX BILL, 1998?
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May 1998 Dewan Question And Answer 1,DEWAN___ANSWER_ON INFRASTURETURE PROJECTS IN SARAWAK 3,FINANCIAL ALLOCATION TO FEDERAL DEPARTMENTS IN SARAWAK 4,POULTRY/ANIMAL FEED PRODUCED LOCALLY 5,PLAN TO MAKE SIBU
DIVISION A VIABLE TOURIST DESTINATION
Speeches /Debates (a) Speech on Dewan Undangan Negeri (Privileges etc) Bill |
Datuk Speaker, Sir, I rise to participate in the debate pertaining to the State Sales Tax Bill, 1998. Most of the Ahli-Ahli Yang Berhormat would have received the Bill on or around 29th April, 1998, like I did. The Bill is rather lengthy and requires very careful reading and deliberation in order not to miss out or be confused as to the mechanics of its operation. I think I can say that to many of the members in this Dewan it is the first time they have seen such a Bill. Datuk Speaker, Sir, By deciding to impose sales tax on selective items only, one can take it that the government agrees that the imposition of the sales tax will burden the rakyat one way or another. Although the Honourable Minister has indicated that the sales tax on these selective items would be imposed after the economic recovery, the imposition and collection of the said sales tax nonetheless would burden the rakyat when the time comes. For this reason, it is my view that debate on the present Bill cannot be confined and based on the understanding and indication from the Honourable Minister that selective items of taxable goods and taxable services ONLY will be affected. It is more correct to consider the merits and acceptability of the whole Bill. In other words, the whole parameter and modus operandi of the Bill ought to be considered. This is because of the general wordings in Clauses 7(1) and Clause 13 of the Bill. Clause 7(1) says: ?A tax to be known as State sales tax shall be charged and collected in accordance with the provisions of this Ordinance on the sale of taxable goods and supply of taxable services in the state in the course or furtherance of any business, irrespective of whether or not such taxable goods were made, produced or manufactured in the State?. Clause 13(1) of the Bill says: ?The Majlis Mesyuarat Kerajaan Negeri may, from time to time, by order in the gazette, specify the taxable goods or taxable services and the rates of State sales tax to be levied under this Ordinance on each item or class of such taxable goods or taxable services?. The order made under Clause 13(1) will follow the procedure laid down in Clause 13(2). Hence, I will make the following comments on the Bill: Datuk Speaker, Sir, (1) Powerful Licence to Collect Tax: The present State Sales Tax Bill, though complex, has been drafted with meticulous detail. Granted that the Minister has indicated that only selective items of goods will be taxed, the detailed provisions in the machinery or systematic and mechanical operation of the law allows the taxation door to be widely opened to enable the government to impose sales tax on any taxable goods and taxable services in the future at any time the cabinet deems fit. This is not a situation where the Opposition is doubting the government?s sincerity in imposing sales tax on selective items for now as indicated by the Honourable Minister in this House, but rather, it is that once passed, a powerful licence is given by this Dewan to allow the government, by order in the gazette, to impose sales taxes on all and any taxable goods and taxable services. When will this Licence to impose and collect these taxes be used will be up to the government. It may be over a period of time after the economic recovery. It may be subtle, in which event the impact on the taxable persons and the end payers may be immediate, or it may be gradual, in which event the impact on the rakyat?s pockets may not be as severely felt. (2) Tax Harmful to Economy: Research shows that taxes do harm the economy in a significant and consistent way. Tax increases (measured by total tax receipts as a percentage of Gross National Product) have led to slowdown in economic growth and often recession. In the United States it has been shown that there is a direct relationship between the amount of tax received and growth in real Gross Domestic Products and jobs over time. In very simple lay terms, tax consistently has adverse economic effects. On the other hand, a tax reduction package may have the effect of boosting an unhealthy economy, if the government can afford it. Example: Japan is facing its most severe economic problems since World War II. In the light thereof, Japan has taken strong measures to strengthen its economy by announcing a US$124 billion package of tax cuts and spending programs aimed at pump-priming her economy: see Mary Jordan, Washington Post Foreign Service, Tuesday, April 7, 1998, Page A18 under heading ?Japan's Hashimoto To Propose Tax Cuts Shift in Course Designed to Revive Economy?. The paper also says ?Emergency meetings were held today by lawmakers to smooth the way for revision of a law that will allow for large-scale income tax cuts -- a move being urged by economists here and abroad. The hope is that if people have more disposable income, they will start spending again and revive the desperate housing, car, clothing and retail sectors. Consumer confidence, at its lowest point in nearly 30 years, is believed to be a prime culprit in the economic slowdown.? The paper also says: ?Hashimoto's initial approach to the country's economic crisis, which included a sales tax increase, is now believed to have worsened Japan's problems?. The repercussion of a Sales tax on an economy may be gauged from this statement. (3) Stagnating Recovery: The Bill does not give any indication of the rate of tax, the extent of the exemptions, the scope of taxable goods and taxable services. Hence, it is difficult to realise the economic impact or burden of the Bill. However, there is a tint of truth in the saying that the most dangerous taxes are those which could become "money machines" - Value Added Tax (VAT) and Sales tax are usually considered to be in this category. To impose and collect Sales tax when the economy recovers may stagnate or thwart the zeal to push for recovery, and in the long run may hamper economic growth. (4) Negative Incentives: Taxes deprive the private sector of financial resources to expand growth and often produce negative incentives for desirable activities like business investment or increasing work efforts. On the other hand tax cuts raise returns to labour and capital. At present because the rate of Sales tax is not known, it is not possible to quantify this benefit or deprivation. In very general terms, a sale of a dollar worth of taxable goods would now require the following incidences of taxes to be considered: Items of Tax Amount of Tax Amount of Tax
Thus on a profit of 20 sen, 16 sen goes to taxation. It is then a good question to ask: ?What is left for business investment or where is the incentive to work?? This effect comes about because Sales tax is not a tax credit for income tax purposes, nor is there in the Ordinance any provisions for taxable goods on which federal sales tax has been paid to be exempted from the State Sales tax. It would be prudent if such can be spelt out clearly to avoid multiple taxation. (5) Tax Relief: Subject to correction, it is usual to exempt government agencies from tax obligations. Yet if these government agencies are in the business of providing taxable services or taxable goods, they will be placed in a more advantaged position than the private sector. As a matter of policy the question is whether this is desirable or does it not distort their true ability to compete? (6) Cost in Compliance: There is little doubt that tax compliance by the private sector is going to cost money, for there are the necessary bookkeeping and accounting for the tax which may be different from those for the Federal Sales tax or income tax. Under the State Sales Tax Bill, a tax audit certificate is required. In many cases also, sales taxes are collected by the taxable persons but only to keep that to themselves. In many cases it has cost the government considerably to enforce Taxation legislation. (7) Diversifying Revenue Base: It is important that the Minister amply explains the rationale for the State Sales tax. This will help to justify or discredit it. Taxation cannot be an end in itself. If it is intended that the revenue derived from the imposition of this sales tax be paid and credited to the State Consolidated Fund, it is, I think, important to know why the need for such revenue? Is it because of expected or anticipated cuts in Federal allocations or depletion of traditional sources of revenue that it has become necessary to come up with a new revenue source? The preamble of the Bill gives no indication. There are merits in the suggestion that the state government must diversify its revenue base. This is important and wise, because the government cannot rely on revenue from, say, timber and oil palm all the time, as any change in the demands for these major revenue earners may have drastic consequences on the State Consolidated Fund. However, perhaps the government can consider looking for cushion elsewhere, eg. to open up more land which are otherwise idle for large scale and commercial farming with the ultimate objective to export these farming produces and so as to reduce the reliance on imports, and I understand that food imports totalled about RM1.2 billion last year. Perhaps, the government can also consider to approach the federal government to review the old agreement made in the 1970?s whereby 5% royalties for crude oil is given to Sarawak. An increase of 1 or 2 percentage point may be a significant sum for the State Consolidated Fund. These other sources of revenue will not hurt the rakyat directly. On the other hand, an imposition of sales tax will directly affect the profit margin of taxable persons. Also, the state government may study the possibility of imposing a tax on 4-Digits draws. There are currently three such operations in Sarawak, Magnum, Toto and Big Sweep. Millions of stakes were transacted in each draw. This is a type of gambling activity which has been legalised but which should be discouraged. A tax may perhaps be imposed on the sales by these operators as well as on the winners of stakes. (8) Incidence of Tax: In order that the tax burden is equitably borne, it is necessary to distinguish between (i) the legal incidence of the tax, ie, who the law says should pay and (ii) the effective or final incidence ie who actually and ultimately pays. This issue depends on how effective or tight are the provisions of the law, who are exempted from the tax, how well enforced is the tax? How much does it cost to implement and manage the collection of the sales tax compared to what is the projected revenue over time? This will give an idea whether the tax is a worthwhile effort in monetary terms. Under the proposed law, although the taxable person is required to pay the sales tax, the actual person paying is the end consumer. (9) The poor is taxed more. There is a big disparity between the poor and the rich in Sarawak. I think it is right to say that the poor will be taxed more, comparatively, vis a vis the rich. When the axe of taxation falls, a flat rate of say 5% sales tax to be collected by the taxable person will be felt more by the poor than by the rich. (10) Wide Parameters: The provisions of the Bill is very widely cast. By Part III of the Bill, the tax is to be charged and collected on the sale of taxable goods and supply of taxable services in the state in the course or furtherance of any business. What constitutes a ?sale? is given an expanded meaning. ?Taxable goods? and ?taxable services? are similarly defined in Clause 2. Hence, Sales tax is a tax on the "sale value" of the taxable goods. Clause 15 explains what is this value in several situations. Sales tax, therefore is not on the profit of the sale. Hence, Sales tax is still to be paid even if the sale produces a loss!! For example, an air conditioning unit purchased for RM1,000 by a business which is sold for RM800 is still taxable, for Cluase 15(a) says the sale value of the taxable goods shall be the price for which the taxable goods are actually sold. Sale value of taxable service is not indicated. (11) Directors? Personal Liability: Under Clause 29, the directors of a company, including persons who were directors of such company during the period which such liability arises, or the partners of the firm, and members of the association of persons, are made personally liable for the Sales tax of their companies, firms and associations. Directors' personal liability is novel because income tax is not made the personal liability of the shareholders or directors. (12) Public Consultation: I have received e-mails from the rakyat saying that they should be heard on matters concerning sales tax. Similar requests from the rakyat for referendum before passage into law have also been obvious from postings in the Internet, both from Sarawak Talk and Voice of Sarawak. Since it is a Bill with the potential of casting a financial burden on their shoulders, perhaps, such requests are not unreasonable. As the legislation will directly affect the rakyat, it is my view that the Bill be referred to the select Committee in order that the cross sections of the rakyat may be consulted. With these comments, I wish to state categorically that neither the
DAP nor myself nor Ahli Yang Berhormat bagi Pelawan supports the Bill.
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