'Increase tax relief incentive in Budget 2013'

KUALA LUMPUR: In order to attract and encourage more people to save for retirement, the Malaysian government should increase the tax relief incentive to RM10,000 from RM3,000 for the newly launched voluntary private pension scheme, an independent financial advisor said today. Everything we earn and almost everything that we buy is taxed. The tax that is deducted from our earning and sales taxes are known as income taxes and social security taxes. Isn’t it obvious that we are the one paying all the taxes all the time? Our income tax and social security tax are deducted from our monthly salary. Almost everything that we buy in Malaysia is also entitled us to pay tax for it. Tax incidence is a type where they have buyers that pay the tax due to the price rises by the full amount of tax, sellers pay the tax due to the price doesn’t rise at all and also if the price rise by a lesser amount than the tax, therefore buyers and sellers share the burden of the tax.

The diagram above illustrates the perfectly inelastic demand of petrol. Before the tax impose, the price is RM0.60 per liter and the quantity is 20,000 liters per week. A tax of RM0.50 a liter shifts the supply curve to S+ tax. The price rises to RM1.10 but the quantity is remains the same. The tax doesn’t reduce the quantity of petrol consumed because every vehicles need to use it to function. There is no substitute for it. The perfectly inelastic demand means that buyers will pay the entire tax. Another example, on 19 September 2012 the government imposed on tax increase on cigarette to increase the government revenue and also tobacco control, especially provision of effective treatment for current smokers using approved medications and behavioral support at all healthcare facilities. The government actually thinks that a premium brand of tobacco that is been sell should be selling at the price of RM20 instead of RM10 so it could burden the consumer wallet and also make them think twice before purchasing a box of cigarette. Besides that, sellers will be paying the entire tax when it’s a perfectly elastic demand. When the prices tax of an IPhone increases consumer would definitely not happy with it because a normal price for an IPhone is around RM2,599 and if the government imposed a tax increase and the sellers wouldn’t want to cover up the tax cost for the consumer eventually the price would shoot up to maybe around RM3,599 depends on the tax percentage increased. The reason why the government imposed a tax increased for the IPhone so that the company wouldn’t have any choice but to cover up the cost so that the consumer would be delighted with the price of the phone.

From the diagram above, the tax will affect in the supply curve of petrol, the supply curve shift to leftward. When there is no tax, the equilibrium price is RM0.6 per liter and quantity is 18,000 liters. After the tax of RM0.50 a liter imposed on sellers, it shifts the supply curve from S to S+ tax. The equilibrium quantity decreases to 12,000 liters and the price paid by buyers rises to RM0.90 a liter, and the price received by seller falls to RM0.40 a liter. Tax incidence and elasticity of supply indicates the division of the tax payment against the effect of the elasticity of supply. A perfect inelastic supply means sellers pay the entire tax. Which means there are no any effects to them of the tax change and they still produce the same amount of quantity no matter what price changes there is. An example, a manufacturer is able to produce 10,000 pizza’s a day at the price of RM2 a day. After the increasing of tax from RM2 a slice to RM4 a slice, the manufacturer pizza company is still able to produce 10,000 pizza a day. As for the perfectly elastic supply, where the buyers pay the entire tax. This is totally an opposite way compare to perfectly inelastic supply. It means that the pizza manufacturer company that usually produces 10,000 pizza’s a day at the price of RM2 per slice will not be the same anymore. In this situation the pizza manufacture company would decrease their production of pizza due to the increase of cost of production. Thus, the more elastic the supply, the larger is the buyer share of tax.

Tax is a huge burden for everyone. The government can charge tax from us in all kind of methods such as road tax, food tax, services tax. This is why some people have the intention to dodge tax. Recently the board chief executive officer Tan Sri Dr Mohd Shukor Mahfar said that each year, 20% of the country’s taxpayers usually fail to submit their return forms which lead to high suspicion to the government. Dr Mohd Shukor told a press conference at the National Tax Seminar on 4^th October 2012 to relate about tax dodgers that “this means they run the risk of being jailed for the offence”.

                     

Is it true that tax cut could help us Malaysian households to save up some money? It’s foreseen by experts that we are able to save up an average of RM1,000 a year. On Monday 1^st October 2012, Prime Minister Datuk Seri Najib Tun Razak announced a reduction of the individual income tax rate by one percentage point. Although it’s 1 percent only but we could at least have more money on other expense and for those that save up the 1 percent could even make a whole lot of money when it comes to long-term. If there is no tax for everything, then our country sometimes could not control the spending of our human race and also wouldn’t have the money to expand the country. Therefore everything happens for a reason not only the tax but also everything that do with economics that happens for a reason.

Johnson.N