We need a fair taxation system to efficiently develop the nation and GST is doing just that

Goods and services tax or GST has become a subject of debate for a long time. Irrespective of political systems either democracy or single party state, irrespective of  planned or free market economy, countries around the world have been adopting the GST as part of a more efficient tax collection system. In some countries GST is called Value Added Tax (VAT). It is called VAT because at each level of production, VAT or GST will be charged and not just to the end consumer. And importantly businesses and enterprises who are charging GST and paying GST at the output level will be able to deduct the GST paid at the Input level. Meaning businesses do not pay the 6% GST gross but rather the net of the output minus the input. It is not true to say that GST is cumbersome as businesses have been paying and collecting Sales and Services Tax (SST) prior to the introduction of the GST in Malaysia.

As we know in Malaysia, there are many people who do not pay income taxes. Those who are earning below certain threshold are exempted from income taxes and only a small percentage of Malaysian actually pay this class of tax. Reliant on income tax alone will add to the stress of the Malaysia's financial management. What more with the depleting revenue from oil and gas sector and the volatility in the commodity prices.

The Government needs to diversify both the mode of raising income and the economy as a whole. The Government needs to have an efficient tax system to sustain the economy and spending level to support the development of the country whilst diversifying the economy. Malaysia needs to move from natural resources-based economy to the efficient-seeking economy. The transition may take time and the result may not come overnight. But the Government needs to continue to develop the country and provide infrastructure and attends to the need of the people. Hence, the GST has been able to sustain the country whilst it is in transition. Once we are have managed to transform the economic base to efficient-seeking activity and services economy, Malaysians will be able to see feel the effect of the changes.

At the same time, the Government cannot just rest at its laurel. The Government has to look at making the GST collection, refund and appeal system more efficient. Rest assured, once the GST system is more efficient and businesses and enterprise are able to collect the refund and to lodge appeal at a faster rate, people will be able to see the benefit of GST and will see the efficiency of the system. 

Good Governance and the Government should not be in the business of doing business

It has been a long time since I last wrote my note on the TPPA. It has been very quiet on the TPPA front, not because the TPPA is not working but because TPPA is turning into TPPA-11. TPPA-11 is not a failure of TPPA, but rather an important plurilateral high standard agreement of a new era, an agreement between 11 Parties, whilst on standby to re-accept a 12th member who has gone into hibernation.

At the home front, there are several incidences of late that have caused great uproar in the society, from the flip-flop of the pilgrimage visa registration system (luckily it is not called IMAN  - or rather the lack of it) to the loss of an important piece of land belonging to a Federal agency entrusted to reform the society through social engineering. The two incidences potentially indicate lack of good governance. At the same time, there is a need to re-examine the role of the big government, where the government is supposed to be having a hand in every part of the society including in doing business. Moving towards TN 50, the government of the day has to prepare the younger generation, the leaders of the future, on how to govern the country in a sustainable manner. Note that sustainability is not just about adopting green policies, but also about ever-greening the country and the future of this great nation. As mentioned in the Brundtland Report, sustainability is about meeting the needs of the present without compromising the ability of future generations to meet their needs.

In the first case, all new rules and regulations should go through a Regulatory Impact Assessment (RIA). There is a trend among policy makers to rush through polices only to retract immediately after. The visa registration system was not the first, and may also not be the last. If a government department or agency adopts the RIA, as promoted by the Malaysian Productivity Corporation, such flip-flopping would not have occurred. RIA, among others, require public consultation on all new rules and regulations. Note that public consultation means real consultation and not just a one- way traffic seminar or public briefing. Public officials should consider their position after listening the different views from members of the public. As what Malay proverb says "Biar Lambat asal Selamat" or "better safe than sorry". In the era of digital communication, news travel as fast as the light. News travel faster than the speed of sound. Hence, policy makers should listen more to the public.

The article would not comment on the legality of the second incidence. However, this incidence further indicates that the Government or its agency should reduce its role in business. Do what one can do best. The Government's main job is to govern and not do to business. Leave the business to the business people. Mixing governing with business is a risky business, One may lose both the monetary capital and reputation and political capital and reputation. There is always a risk of shooting an own goal, or worse still, shooting once's own foot. The article does not say that a politician cannot be a good businessman vice versa, but the best way forward is to allow the role of specialisation to take its effect. Meaning politicians should focus on politics and businessman should focus on business. Leave business when you are in government and leave government if you want to become a businessman.

In conclusion, the article recalled the words of a former Prime Minister "enter politics after you become rich... and not to become rich by entering politics".

The TPPA Post US Eelections

THE TPPA POST-US ELECTIONS

8^th and 9^th of November 2016 were days of reckoning and days of reflection where the United States of America went to the country and voted for the Republican Candidate Donald Trump as the new President, and returned both the Senate and the House of Representatives to the Republicans. The election of Donald Trump and the more conservative but pro-business Republicans to the pinnacle of the US Administration and Congress raises one important question, i.e. what will happen to the United States’ driven Transpacific Economic Partnership Agreement or widely known as the TPPA.

Although I am generally a pessimist, in this regard, relating to the fate and future of the TPPA, I take a very optimistic and positive view, for the following reasons:

1.       President Obama still has until 19^th of January 2017 to push through the TPPA ratifications in the United States’ Congress, which is another 2 months. The current Congress still functions and is still capable within its mandate to ratify the TPPA as an important legacy for President Obama. With President Obama handing over power to Donald Trump instead of Hilary Clinton, Obama and supporters of TPPA at the Congress (representing both the Democrats and the Republications) will work harder to push through the deal in Congress by the 19^th of January 2017. President Obama has put up notice to Congress on 12 August 2016 that TPPA is going to be deliberated and debated and voted by the Congress, under the fast track power granted by the Trade Priorities and Accountability Act of 2015 (TPA-2015), which was signed into law by President Obama on June 29, 2015, which applies to trade agreements signed by 1^st of July 2018. Under the fast- track, Congress will be able to vote Yes or No but will not be required to go through the agreements in detail. This power is not limited to President Obama, but will also be extended to President Trump.

2.       It is hard to predict how the Congress will vote before the current term ends on 19^th of January 2017, where both houses of Congress, the Senate and the House of Representatives are divided over the TPPA deal. However, one cannot simply shoot down the TPPA as a dead duck, as the Senators and the House Representatives may want to give the deal as important approval before many of them leave the Congress for the last time. Joe Biden said, there is a genuine chance that the TPPA will be passed by the Congress before the end of the term (Reuters, 22 September 2016).

3.       TPPA is important, not just for the USA, but also for the 11 other TPPA negotiating Parties, and for Asia and the Pacific economy. The USA will be able to influence trade and investment rules and rule-making in the many decades to come. The TPPA is not just part of the USA’s trade policy, it forms part of the overall USA’s foreign policy. TPPA negotiating Parties will push the USA to ratify the TPPA through various official and unofficial channels and USA, as the World’s Number One economy will have to listen. In addition international trade is important for the USA, as it makes up 28 percent of the USA’s GDP of USD 17.947 trillion in 2015, which is about USD 5 trillion or about RM 20 trillion, (almost 20 times of Malaysia’s total international trade), compared to just 9 percent in 1960 (World Bank, 2016). This also shows that the USA has come a long way from being a protectionist economy to a more open and international trade embracing economy.  

4.       The USA’s foreign and foreign trade policies are not made by one person and for one person. The US Trade Representative for example has to listen to the various working group and committees that provide policy input and proposals. These working groups and committee represent a broad range of trade and investment interests, not to forget the labour groups such as the AFL-CIO. These working groups will ensure that the TPPA is ratified and brought into action as they have been working hard to provide their input to the USTR during the TPPA negotiations. These working group representing industries and investors will ensure that their voices are heard in the Congress.

5.       In the event that President Obama fails to get the Congress to ratify the TPPA by 19^th of January 2016, there is still a high probability that President Trump will ratify the same, for the same reasons that I have argued above. History may repeat itself. When NAFTA was negotiated by President George H Bush, candidate Bill Clinton said he would support the agreement subject to some changes. President Clinton signed and approved NAFTA. At the same time note that George H Bush was a Republican president in the same way as President Elect Donald Trump.

6.       In his election rhetoric, Donald Trump said he would cancel the TPPA because it is a “rape” to the US economy as it is bad for job and causes the decline in the manufacturing. However, being President is a different kind of game. President Trump will have to ensure that the economy continues to run and create jobs and opportunities at home and he has to rely on the international trade for this. Without international trade, US will be trading domestically and this will increase cost as wages are high and natural resources are scarce in the US. At the same time, any policy that goes against the WTO agreements will be subject to dispute settlement claims under the WTO Dispute Settlement Mechanism. Being an international businessman, Trump cannot afford to be seen and to implement anti-globalisation and anti-international trade as these policies will go against USA’s global economic and political interest.    

7.       In conclusion, there is still room for TPPA to be approved and implemented. 

WHY SOME ASEAN MEMBER STATES OR CHINA ARE NOT IN THE TPPA

Yangon has always been a nice place to come back to. It is a very dynamic city, a melting pot of culture, yet distinctively Burmese. Mosques can be seen on the downtown Yangon although Pagodas are the main religious focus of the mainly Buddhist society. I met one Burmese, sitting next to me in the MH 740, a Burmese, yet a Christian, who spoke highly of Malaysia and the way Malaysia has been conducting itself in the past many years that Malaysia overtook Burma who used to be the richest country in Southeast Asia. Myanmar or Burma will soon be back on its past glory.

Whilst in Yangon I come across statements that why some ASEAN Member States like Indonesia, the Philippines and Thailand are not in the TPPA. This is not a new issue, just like why are not BRICs countries in the TPPA.

TPPA is a creature of APEC and opens to all APEC economies who is willing to join. It is by way of self invitation when an APEC economy is ready to be involved in the high standard trade agreement, which standard is higher than those in the WTO or the ASEAN Agreements. TPPA started as a P4, which is an agreement between Brunei, Chile, New Zealand and Singapore, all are APEC economies. APEC Leaders agreed that the P4 will be the basis of the TPPA and membership is voluntary. No one will be stopped from joining, as and when they are ready.

However, some ASEAN Member States, i.e. ASEAN-6 are not joining due to their domestic issues.

1. In the case of the Philippines, although they have indicated their interest to join, they have to look into capacity building, and further opening of the county's economies. The Philippines' early membership in TPPA is also subject to some constitutional constraints, which they have to overcome. Yet they are interested and are now preparing themselves for the accession into the agreement. Thus, to say that the Philippines is not interested is not true. Read here: http://cnnphilippines.com/business/2015/11/20/President-Benigno-Aquino-III-Trans-Pacific-Partnership-TPP-membership-PH.html

2. In the case of Thailand,  the constitutional crisis. Former Prime Minister Yingluck Shinawatra expressed the desire for Thailand to join TPP negotiations way back in 2012, when she met with President Obama. Read here:  http://www.ictsd.org/bridges-news/bridges/news/thailand-expresses-interest-in-joining-trans-pacific-trade-talks-as-tpp

The rest is history.

3. Indonesia has to work on their domestic economy such as liberalisation of their investment in main and services sector before joining. Yet President Jokowi has also stated his country's interest in joining.

Back to Yangon, the country is slowly moving back to its former glory. The successful general election shows the maturity of the people of Myanmar in embracing democracy.

Have a good week ahead.

Welcome ASEAN Community

Its 1st January 2016 and the ASEAN Community is supposed to be have come into being on 31st December 2015. As expected no headlines mention about ASEAN Community on the 1st January 2016, even though ASEAN has reached a big milestone in the last 27th ASEAN Leaders' Summit in Kuala Lumpur. In fact I was hoping for Malaysia to at least hit the headline by welcoming the ASEAN Community, but none was forthcoming. The ASEAN Leaders should have held a special session on 31st December 2015 to commemorate this important milestone. However, it has been a very quiet day in all the 10 ASEAN Member States as far as the commemoration is concerned.

For those who are interested, and all ASEAN citizens should be interested, ASEAN Community consists of 3 different communities, the ASEAN Political-Security Community; the ASEAN Socio-cultural community and the ASEAN Economic Community. These are three pillars of further cooperation and closer integration of the 10 ASEAN Member States in the next 10 years, especially with the launching of the ASEAN Community 2025 Forging Ahead Together. For those who are interested can obtain a copy of the ASEAN Community 2025 from the ASEAN website www.asean.org.

ASEAN Community  attracts attention from all over the world. In the last ASEAN Community Forum in Berlin the German and the European Union has shown great interest in the progress in the ASEAN Community. In the last ASEAN Economic Integration Forum organised by Institute of Malaysian and International Studies (IKMAS), the World Trade Institute (WTI) and St. Antony's College, University of Oxford, we discussed at length the progress and challenges to the further development of the ASEAN Community.






On 13 January 2016, IKMAS together with the Institute of Diplomacy and Foreign Relations, Ministry of Foreign Affairs (IDFR) Malaysia will organise the first forum of the year on the ASEAN Community 2025. Let us work together to make ASEAN Community 2025 a success by taking steps towards the implementation of the work plans and the higher level of integration in the 10 member states.

HAPPY NEW YEAR, HAPPY ASEAN COMMUNITY

TPPA the Series

I received some comments that the my previous entry did not discuss the most important topic of interest to many people: the effect of TPPA on public health. There are also other important issues such as the rights of farmers and UPOV 1991, and also Government Procurement, State Owned Enterprises and Investment issues.

These will be discussed in a series of entry within this week.

Please bear with me.

TPPA: BE RATIONAL AND OVERCOME OUR EMOTION: Ovecoming the Fear of the Unknown

Dear All

I have just returned from one of my trips to many developing and least developed economies. My first and second trips to the Federated States of Micronesia thought be a very humbling lesson in life, that a small island country in the middle of the Pacific look forward to overcome their size and distance to be economically competitive. The main disadvantage of Micronesia is the distance and connectivity from the rest of the world, but this does not mean that they are locked out from all what happens in the developed world. They want to be developed and want to be an advanced country. In this trip I managed to visit Nan Madol, the old kingdom of Micronesia that started in the year 500 AD, which shows Micronesia has been having civilisation much earlier than many of the states in the Malay world. This also shows that international trade has been an important part of human civilisation from time immemorial. Another lesson I learnt from my work in the developing world is the "fear of the unknown" which can be overcome by having rational discussions over issues in the mind of the people. We can overcome "the fear of the unknown" if we use our mind instead of our emotion.

This brings us to the biggest of the century: TPPA.

TPPA is a trade agreement between 12 countries in the Pacific region. It opens to all APEC members to accede to it at a later stage if they want to. In fact many countries have indicated their interest to joint as acceding parties.

But Malaysia has the upper hand as we are the original party and we have the advantage of being able to dictate terms to the acceding countries, over and above of what have been agreed upon by the original parties.

In this edition, I will focus on the big picture.

Let us do away with our emotion when discussing this important topic. There are several reasons why TPPA is important for us:

1. We are a trading nation. Our trade is more 100% of our GDP. One may say we will continue trading even without TPPA, yes agreem but at different price and different terms. With tariff has become so low, non-tariff barriers will increase the cost and TPPA's advantage is about reducing the non-tariff barriers among the signatory countries.

2. Linkages between trade and investment. With trade we will be able to increase investment. It does not mean that the economy will die if we do not join TPPA but investors will be looking for better market to invest in, markets that offer more liberalised market access.

3. No colonisation by major corporates. We are talking about trade and investment. Major companies have been investing in Malaysia already even before the TPPA, has there been colonisation? Are we saying that we should not welcome British firms or Portuguese Firms or Japanese firms? We have to strategise our economic approach on how to leverage from the investment by major firms. They bring in capital and innovation that we need to enhance our economy and to enhance our linkages to the global value chain. The Global and regional value chain is important for Malaysia as we cannot ignore the fact we have been a global player and part of the global value chain since the beginning of the history.

I will stop here for a while and will come back with more later today or tomorrow.

In the meantime, even if one objects to the TPPA, please let us have healthy debate by using our rational mind and overcome our emotion.

Have a nice day