Public Finance

1. Introduction

2. Discussion

2.1 The Need of the Program GST

Based on the Royal Malaysia Customs Department official website Malaysia goods and services tax (GST): Propose of GST is to substitute the current consumption tax, such as the sale and services tax (SST). Implicated the GST in our country in 1 April 2015 is part of the government‘s tax innovation programmed to improve the quality, efficiency and effectiveness of the existing taxation system  (Royal Malaysia Customs Department, 2014). According to minister of economy state that GST are certify to be a better tax system, example country implicate GST is Singapore and Japans. GST is more effective, efficient, transparent and fair. Furthermore, GST could drive the economic growth yet increases competitiveness in the global market. And also GST is expert of generating a more stable source of revenue to the nation compare the SST. On account of GST is less susceptible to economic fluctuations  (Royal Malaysia Customs Department, 2014).

The benefit of the GST to Malaysia, such as:

1. Improve the standard of living

The revenue from the GST used for development purpose for social infrastructure, such as health facilities, educational infrastructures and public facilities to improve the standard living.

1. Lower cost for operating business

By using GST system, business can benefit from recovering input tax, thus reducing cost of operating business.

1. Nation building

GST is more efficient method of revenue collection for government. More funds can channel into nation building project for progress towards achieving a high income nation.

1. More fair and equality

GST is more fair, it involve all the business. (manufacturing, wholesaling, retailing or service sectors).

1. Increase the global competitiveness

While GST incurred on inputs, it can be recovered along the supplies chain. This will strengthen our export industry, helping the country progress even further.

1. Fair pricing to consumer- Consumer pay fair prices for the good and services compare to SST.

1. Transparency – Consumers would benefit under GST as they will know exactly whether the goods they consume are subject to tax and the amount they pay for.

        According to public policy institute (CPPS) (2015), the government implement the 6 % of GST are determination to reduce the budget deficit and to promote the fiscal sustainability sex. At the same time GST also a method to gain revenue helps the government to reduce the financial budget gap in 2014. The government needs to rationalize subsidies and saving for the government (Nanyang.com, 2013). Furthermore, CPPS also state that with run the GST. The government is expected to gain the revenue Rm 8 million from the tax , and suggested the Government to strengthen measures to combat price manipulation, including turnover reinvested earnings obtained from the consumption tax, to improve the quality of public services for better future (Chinapress.com.my, 2013) . For example government can finance socio-economic development; which includes providing infrastructure, education, welfare, healthcare, national security etc.

2.2 Market failure addressed by the program

        Keynes was determined to give government intervention in the economy a much broader role. This meant that there was no longer any effective limit to the role the government might and should play in the running of the economy. He acknowledges that “the outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and income”. Keynes could be taken, therefore, as arguing that the system was subject to endemic market failure in that there was no necessity for the free-market private enterprise naturally to produce full employment and an equitable distribution of income. He was then prepared to advocate government action on the macro level to help achieve the necessary employment figure closer to full-employment since the market, on its own, would hardly produce such a result. The income distribution would, however, be achieved through a fusion of taxation and government expenditure policies indirectly affecting the level of aggregate demand in the economy. Within the policy instruments advocated by Keynes one sees, therefore, that in his argument there is no hint that government action, as he had proposed, would create extra costs in carrying out tax collection and that such costs would have to be borne by society independently of what was required to be paid as tax. The economy might move in the direction Keynes suggested but it has costs to be paid which should be part of the whole argument. Once the goals are established then one has to look at the benefits they yield. Should the benefits outweigh the costs incurred then there is a strong argument for Keynes's proposals. In his assertion the costs of tax collection are left within the sphere of government spending, which in itself excludes the fact that taxpayers can and will incur costs in assisting tax revenue collection. Moreover, no assessment has fully explored the fact that as the government makes continual use of tax policy this can create huge distortion as far as the allocation of costs due to taxation are concerned. This could even have serious consequences on the long-run production and/or consumption pattern of the economy. One of the hypothesis proposed for this study will be looking into the extent to which businessmen may perceive the effect of tax compliance burden on their firm's performance. Taxation is likely to be used in a way that appeals to all the people, probing social behavior. Another important investigation of the ratio of taxes as a fiscal policy tool was launched by Pareto, who concentrated mainly on the impact of income distribution. Pareto, however, have used their method to trace a certain ratio between the income, arguing that the usefulness of different individuals can not be folded. He introduced a more thorough answer to the question between taxes and social policies. Pareto argument became widely known in economic literature as an effective Pareto distribution tax. His analysis can be summed up by pointing out that the tax is an effective distribution, if it makes at least one person better, without leaving anyone worse-off. The tax on consumption in our country provides a method of changing consumer demand structure through differentiation in commodity prices, in turn, affect their spending decisions. For example, the demand for different types of transport will get depends on the total amount of fees fees. From this perspective, we can see that the consumption tax in Malaysia is seen as an instrument related to the correction of market failures such as externalities. In addition, in this context, the consumption tax is used as a tool in making the polluter pays and internalization of consumption expenditure.