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Sakmongkol ak 47

Monday 9 November 2009

The Fun in Taxes

Perhaps we don't have the quicksilver and super lucid minds of accomplished politicians. Immediately after the Finance Minister read his 2 hour long speech on the 2010 budget, we see and hear the almost ritual like drone of politicians. This is a people's budget. Pro development etc.

How did they do that? Just by listening to a as-a-matter- of- fact speech about numbers here and there, they know it's good? Have they actually seen specifics of the budget provisions? Take the case of mandatory inspection by Puspakom by over 15 years old vehicles and payments of insurance and road tax for motor cycles.

But perhaps the usual reactions from politicians are symptomatic of something even badder. Their state of mind. Can it be that, these people are railroaded into offering prosaic, matter of fact opinions, bureaucratic, apply-through-proper-channels officious reactions? How do we respond to that kind of talk?

That's why I think sometimes, what we need odd tools to uncover the maze of misleading statements, the haze of subterfuge which perhaps cloak the callousness of politicians. Maybe what we actually need is a feral howl or the transformative power of inflammatory speeches.

The people's budget. Of course it is. The money belongs to us. It belongs to people who produce goods and services and  taxes on them. The money comes from our company, PETRONAS in the form of dividends. It's the money government appropriates to manage the country. Because it's our money that the government appropriates, we have the right to investigate as to how it's being spent. Its public interest. Public spirited individuals do more than just listen- they analyze and criticize and offer opinions.

The government has a finite amount of money to spread between operating expenditure and development expenditure. We note that operating expenditure has been trimmed. That is a good move bearing in mind that government's income is likely to be reduced next year. Of course when we listen to opposition voices, they will say, that cut in operating expenditure is never enough. The government, they insist can cut more.

There is a difference between playing to the gallery and acting responsibly. If we cut drastically the operating expenditure, we have to know that behind those numbers are real live human beings who may depend on government operating expenditure to live out their lives. But we give our unequivocal support to cut unnecessary operating expenditures such as buying equipments you end up not using.

One of the provisions lawmakers should make known their thinking, I think is taxes. We all know the saying- no taxation without representation. The statement means that those who are taxed have the right to represent their views. In these days of internet communications, every citizen able to use the net can represent his/her views. Otherwise its back to virtual representation and this is  only effective if we have an articulate MP who can speak on taxation. Scanning through the speeches made in our Parliament, I am gratified to hear that YB Khairy Jamaludin spoke on the subject of GST. It is about this form of taxation that I now wish to analyse.

Since YB Khairy mentioned the term regressive tax, we shall speak about this matter. Just what is a progressive and regressive tax? In practical terms, people wouldn't be interested in the fine distinction between the two. They would be more interested to know, how much burden should be on the "rich", and how much burden on the "middle" and "poor"? Fortunately that is addressed by YB KJ. The principles of taxation are as follows.

  1. In a progressive tax, the more you earn, the higher your tax rate.
  2. In a regressive tax, the less you earn, the higher your tax rate.
  3. Progressive taxes soak the rich, regressive taxes soak the poor.
For the moment though, I would like to defer discussion on whether the GST is regressive or progressive. Let us ask instead, where do our taxes go? We know that only 10% of our population pay taxes. I am not certain the mamak stall at Kg Atap or Taman Wahyu pay taxes in accordance with the amount they earned? Salaried workers pay taxes. When these people pay taxes, what do they get in return?

Progressive taxes soak the rich: why should the richer pay more taxes. It's for the same reasons why the gangster John Dillinger robbed banks: because that's where the money is.   We know in Malaysia, perhaps 20% control anything between 60-70% of our private wealth. This led us to believe that they can afford to pay. Men of straw cant- you can't draw blood from stone. The rich people will counter that progressive taxes are just a form of revenge on the rich", or it's "class envy".   Or they say, "Why should successful people be penalized?" but then, we believe regressive taxes soak the poor. So how do we reconcile these? The GST is seen as a regressive tax- it penalises the poor. Why should they be made to pay for higher taxes?

Have we ever thought of where the different taxes go? Taxes from the rich go toward paying to what the rich boys want and taxes from the poor help pay for what the poor want. Its follow the tax money argument. Sounds fair doesn't it? We can't go on getting things for free? We can't forever excuse ourselves by allowing ourselves to wallow in a siege mentality can we? Let's test this assumption, taxes from the rich pay for what the rich want and taxes from the poor go to what the poor want.  

Progressive taxes (such as income taxes) pay mostly for Rich Boy toys: serving the UN peacekeeping missions, maintaining diplomats overseas, welfare schemes, rakan muda, mat rempits and any related poverty programs, NAFTA, GAT, free trade agreements, interstate highways, Taman Negara, Hutan Belum, , MACC, MIO, SB, submarines and state of the art fighter planes, standing military, etc.

And regressive taxes: (mostly local sales taxes and fees) go for Poor Boy toys: local roads, hospitals, schools, local parks, libraries, police, city councils, majlis bandaran, majlis daerah , fire fighting, etc. If "toys" sounds too teasing, feel free to swap with a term that rings true for you, such as economic infrastructures."

To oversimplify a bit, a pasar malam trader does not require the Rich Boy toys, and the CEO of Khazanah does not require the Poor Boy toys.   So each boy is largely paying for his own meal.


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