Why tax the poor?

Inequity in income and consumption is widening and deepening in Malaysia. The growing disparity will seriously erode the equitable social development goals envisaged in Malaysia’s economic policies.

With shrinking oil resources, the government is looking at the tax system to increase government revenues. The proposed Goods and Sales Tax (GST), to be implemented next year, will impact all Malaysians  but particularly the lower-income groups.  

There is no guarantee that the revenue from GST will be utilised for social development goals of the country. In the absence of social safety nets and adequate retirement funds - the average worker retires with only about RM70,000 - GST will further burden disadvantaged consumers.

Life expectancy of Malaysians has increased to 79 years for women and 75 for men; and given Malaysia’s policy of mandatory retirement at 55 in the private sector and 56 in the government sector, the RM70, 000 will not last long.

Working Malaysians also support a large number of dependents - much of the money pays for healthcare of parents and relatives.

In light of these facts, the GST is a matter of grave concern to all consumers. Its impact must also be examined in the context of  basic needs with a rights-based approach.

The notion of basic needs has changed with the development of national social goals, growth in consumption  and social integration. Basic needs are defined at three levels (Ali Qadir, 2001):

• Survival      Food, water, essential healthcare, sanitation, clothing, shelter

• Capabilities Education, energy, transport, communication, security, access to resources

• Civic           Access to information, political participation

The emphasis on survival, capability and civic needs as basic requirements for a sustainable quality of life is recognised globally.

The first level is essential for survival and a healthy life. The second is necessary for social integration, to avail oneself of opportunities to enhance quality of life. The third gives us the knowledge to understand political structures and  participate in policy making matters.

Malaysian access to all these basic needs has slowly been eroded. When the unpopular privatisation policy was announced in 1983, it led to higher cost of healthcare, education, transport and utilities. The increase in transport costs alone had a knock-on effect on the price of basic goods and services.

Low wages, the lack of social safety nets such as unemployment benefits, the absence of a minimum wage policy, and regressive taxes are all indicators of the difficulties that low-income Malaysians face in attaining basic needs towards a better quality of life, as envisaged in the National Vision Policy (2001-2010) and ‘knowledge economy’ plan.

The poor pay more

The proposed GST, a flat-rate taxation system, will affect all, whatever their income level. But the impact will be highest on those who are poor. By imposing the GST, which is a consumption tax , the poor will become poorer.

They use their income on bare necessities for survival. Poor/low-income households spend about 60 percent of their income on food, compared to 20 percent in higher-income households. The income consumption of the rich is lower, therefore their potential for saving is greater.

I am peeved when proponents of GST advocate price controls for rice, flour and sugar to justify implementation of the policy. Do the poor live by rice, flour and sugar alone?

I am reminded of the phrase “let them eat cake”, which was the message to starving peasants during the French Revolution more than 200 years ago. The phrase is often attributed to Marie Antoinette, the last queen of France, and reveals the selfish attitude of the upper classes towards hungry peasants who did not have the flour to make bread, their basic food.

Price controls for rice and flour will not help the poor. The way businesses operate often causes the poor to pay more for most of their  survival needs. A study entitled, ‘Why the Poor Pay More’ by the National Consumer Council of  the United Kingdom, sums up the reasons why poor people all over the world end up paying more for goods and services.

Due to lack of education, they do not have access to information about even the limited choices open to them.

They depend on local monopolies, as happens on plantations and in the interior of Sabah and Sarawak, where one shopkeeper supplies the goods. The poor do not have the means to travel to seek better quality goods or cheaper prices.

Poor people tend to purchase small quantities of food. Unit prices for smaller quantities are usually  higher than for bulk purchases. The poor are often unable to get credit, except on ruinous terms from Ah Long (loan sharks).

Most poor people are targets for exploitation as they do not have the experience and resources to complain about  unfair pricing or to seek legal redress.

The GST will compound the problems of the poor who will pay more for core basic needs essential for survival, for building capabilities and for civic participation.

This will lead to a situation that will undermine economic progress, social integration and social development in Malaysia.

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JOSIE M FERNANDEZ is currently an Asian Public Intellectual Fellow, director of Philanthropy Asia, and a researcher. She engages with Transparency International Malaysia in anti-corruption measures. An educationist, Josie moved on to citizen's advocacy as founder president of Era Consumers and regional director (Asia Pacific) for Consumers International.

She holds a masters degree in development management from the Asian Institute of Management, Philippines. Working on sustainability, philanthropy and anti-corruption actions are some of her current passions besides writing.