On GST in Malaysia, blinded by other country's GST successes

GST may be just another sales tax, but my opinion is that it is sort of an attack on small company formation and outsourcing. It is true GST is used in a few countries, and rational logic would say, ok it works there without the country going under, therefore, yes Malaysia should be fine.

But the truth is, GST hasn't really been tested in a developing country such as Malaysia which many of its industries are reliant on manufacturing exports. GST is used in Australia, New Zealand, Hong Kong, Singapore, and Canada where the income is relatively high on a Gross national income basis and the economy is fully developed. It is true, Australia and New Zealand do export quite a lot of items, but their products are mainly natural resources and agricultural goods, relatively low on the value chain of manufacturing.

Malaysia does not have a high national income per ca pita and the economy is not developed. Costs do matter as the country is a manufacturing export based economy and is in competition with worldwide exporters.

Services are built around the manufacturing sector. E&E exports are very dependent on the structure of the economy. In A GST structure, companies will outsource less and build up the value chain more to avoid the taxes. A lot of small time vendor services will be much more costly as companies toward the end of the value chain rethink their outsourcing strategy.

E&E will suffer the most cost increases as their whole structure is based on outsourcing. The number of parts involved in the products is quite dependent on outsourcing costs. If the products become too costly, the end manufacturers will vertically integrate, killing thousands of vendors which compete for their business.

If you are in the camp that small businesses drive economic growth, then yes, GST will hinder economic growth.