Saturday, September 24, 2011

The Terrible Word

There is a word that is hated by many. Politicians hate using the word, though reluctantly they usually have to; the rich, middle class and poor equally detest it; companies balk at it and cry for mercy. The word I am talking about is TAX.
Yes, I am talking about the recent hoo-hah over the 6% prepaid tax that telcos want to pass on to consumers. There have been countless allegations, as well as extremely flawed and fundamentally wrong arguments coming from both sides of the political divide. Even more appalling is that some of them come from our Finance Minister.
In this article, I will systematically address some key issues that have cropped up in this fiasco, and show you how misleading the mass media has been over this. Bear in mind I will be trying to explain this in plain English and not economic jargon, so pardon me if I sound less “sophisticated” or “academic”. Anyway, moving on…
1. If the corporation absorbs the tax, I don’t have to pay it
This is one of the greatest myths in economics: that if we tax corporations, and they absorb it, we do not have to pay for it. Let me ask you a simple question. Who pays taxes? The floor? The company table? People pay taxes.
Taxes are basically an extra cost. Let’s say I make a packet of nasi lemak for RM 1. My cost of making one packet is RM 0. 50. Therefore I earn RM 0.50. What happens if the government says I have to fork out 10% in taxes. So that means now, I have to pay a tax of RM 0.10 (10% of RM 1). This means my profit has reduced from RM 0.50 to RM 0.40.
My next question to you is what does a mak cik selling nasi lemak do when her profit is reduced? She can do two things: raise the price, or try to reduce the cost. In the case of reducing cost, it would means either using cheaper ingredients, or hiring less workers. In any case, someone else suffers along with the nasi lemak mak cik: people – us.
The telco situation is exactly the same. By asking the telcos to absorb the tax (i.e. not allowing a raise in price), and telcos being profit-oriented companies whose ultimate goal is to maximise their profits, they will do one of three things: (i) they will have less dividends to pay out to investors, who poured their hard earned money in the enterprise; or (ii) they will reduce their workforce, depriving of people like you and me of jobs; or (iii) they will cut down on the quality/ maintenance/ bonuses that their customers receive, resulting in worse service for everybody; or they will try to raise prices in indirect ways such as a higher registration fee, and some other type of implicit cost. In any case, who really ends up paying for the tax? The rakyat.
2. It’s the corporation’s fault, they’re earning so much anyway
A lot of anger has been directed towards these telcos, saying how they should be happy with what they have, and not burden the rakyat.
I have three responses to that:
Firstly, the tax is government imposed. The government is trying to shift the blame from themselves to the telcos. It’s like this: I make you pay, but I do so through another person. The other person then gets the blame for making you pay, and then I say how I’m such a great guy for helping you, and then get the money I made you pay in the end anyway. Now I do admit this is a rather simple illustration that does not take into account the uses of tax revenue (I will address that later), but in a nutshell, this is exactly what is happening!
Secondly, I have illustrated how the rakyat still ends up paying for the tax one way or another. In one case, it is kept hidden; in the other, you know what you are paying for. Is it not better to at least be mindful of the real costs involved and be able to adjust one’s spending accordingly? Also, companies are ultimately made out of people. If I told you, you’re earning too much, you should absorb someone else’s taxes in addition to your own income tax and for Muslims, in addition to zakat, would you be willing to? I understand that perhaps there are cases of very kind people, but the majority would deem it unfair because you’re paying for other people from your own hard earned money!
Thirdly, telcos also have a particular need for more money since it is a technologically based industry which is constantly developing and improving. We’ve had EDGE, 3G, 4G, god knows how many other Gs there are. Telcos need the money to expand, and relentlessly improve their services to consumers. Without that revenue to invest, their service will not improve and they will be far behind in terms of world competition. Do you want faster and better service, wider coverage? Then your telco needs profits – in the billions – to be able to provide all this expensive infrastructure and technology for you!
3. Government needs that revenue from taxes
Many have come up and defended the need for government revenue from taxes. Agreed, there is a need for income tax, but is there really a need for this prepaid tax, especially when many prepaid users come from the lower income bracket?
The lower income bracket can benefit from this tax revenue if it is put to good, responsible, and efficient use – especially in the case of education programs to uplift the poor. However, I’d like to point out how this has been a consistent argument for high taxes, yet till today, 4 out of 5 of working Malaysians only have up to SPM education, while much of taxpayers’ money has been channeled towards mega projects such as Port Klang Free Zone (PKFZ). Simply put, it’s not that we don’t have enough tax revenue, it’s that it is not being utilised properly.
It is my humble suggestion to abolish the prepaid tax altogether. Abolishing it would free telcos to lower prices to be more competitive (since now their cost is lower) thus benefiting all prepaid users. It would also potentially free up some income, especially for poorer groups where phone usage is a substantial part of their expenditure. This would allow them to use that saved money in a way that they would like to use it best, whether it be food, or education for their children; it would give them more control over their expenditure, rather than relying on state welfare programs where there is often inefficient administration.
This would allow politicians to bring up two words that people love and not hate: NO TAX.
All in all, I urge you: please think of the big picture before condemning telcos.

As published on September 23rd 2011 on LoyarBurok and the Malaysian Insider.

Friday, September 9, 2011

Of Fairytales, Youth and Public Policy

Despereaux. It is a French word meaning desperate and despaired, and also the name of a character in a fairy tale, the Tale of Despereaux. In the story, Despereaux the tiny mouse tries to make a mammoth change in a huge kingdom. But beyond its literal meanings, Despereaux is about unlikely heroes.
That was the name of my team, which recently won the runner-up in the inaugural Malaysia Public Policy Competition (MPPC) , suggested by my teammate Ezreena. This post is about the MPPC, a competition where youths compete to present new public policy suggestions, my personal experience during its duration, and above it all, the unlikely heroes of Malaysia – the youth.
We of Generation Y have often been criticised as apathetic, immature, unfocused, and unpatriotic. My experience – and I am sure this is one shared by the judges ( including our very own Edmund Bon) – has shown not only that this view is plainly unfair, but also that we are a viable and untapped resource for change in Malaysia.
Selangor State Legislative Assembly Speaker Dato Teng Chang Kim, who was one of the judges, commented: “You are all more than qualified to be MPs.”
Indeed, we did not call each other racists at the top of our voice, nor did we refer to each other as Big Monkeys (unless we were being compared to Lord Bobo, in which case we would consider it an honour), nor did we ask dedicated men in wheelchairs to stand up. We did not call for a crusade when dealing with sensitive issues such as race and religion, nor did we ban certain colours.

We used logic, reason, research, facts, and innovation to pull through, and ultimately proved ourselves. My team’s idea, setting up a website to monitor police corruption based on the model of a fashion shopping site called Net A Porter, was one of the suggestions proposed. UT Mara 1, the champion, suggested live streaming of trials involving politicians to ensure justice and to guarantee transparency in disseminating public information. Hamtaro, who came in 3rd, had simple, practical ideas to tackle one of the most pervasive issues of corruption amongst youths: bribing for driving licenses. All these ideas utilised social media, IT, and public involvement, and were fresh and bright policies for the betterment of the nation.
Our policies were not only creative, they were grounded in political reality. We took into account challenges such as cost, public perception, and resistance from the civil service in a pragmatic manner, and quickly devised stop gap measures to lessen these consequences within our ideas. We had implementable and realistic plans, where the time frame and methods of achieving our policies were  clearly outlined. For my team, we had our super researcher Kai Tyng to be our Wikipedia. We were not naive, taking into account the need to generate political will and exert public pressure to ensure our policies would see the light of day.

Champions, UT MARA 1. Image from the Sun.
Besides all that brain-racking, we had heart. We were focused and committed – God knows how many Red Bulls were consumed the night before presentation time. For myself, I opted for a more Malaysian way of staying awake: Sup Kambing from the mamak stall across the road, very helpfully tapau-ed by my ever reliable team leader, Johann. One of the other teams were jokingly speaking of how they lost their “never stayed up all night” virginity at the hotel. (And I hope for productive and not reproductive reasons!)
Discussions of thorny ( horny?) issues aside, it wasn’t just the participants who were willing to give their all. The people running about, getting sponsors, spreading the news, setting up websites, taking care of us were the outstanding members of the International Council of Malaysian Scholars and Associates. These were Maxis, Axiata, Bank Negara, JPA scholars and other distinguished youths who had been planning the event for months, and had flown back to Tanah Tumpahnya Darahku from all over the world to organise the event.
But most importantly, we were all Malaysian, in the truest sense of the word. My team joined the competition with little expectation, thinking of contributing to our country (though the prospect of RM 4k was a little tempting. Ok… maybe it was very tempting, but that’s not the point). Notions of segregation and discrimination were thrown away.  Race? The only time the word popped up in my head was when I was racing to the toilet after the Vitamin C + Sup Kambing + Strepsils combo. (It’s as lethal as alcohol and durians, I assure you.) Division? The only things that were really divided were the food portions; we were all united in our aspiration for a better Malaysia. It was a special moment of pride when UT Mara 1 won – a home grown team winning over students from LSE, Imperial, Oxford, Brown etc.
I’m eighteen this year. I stopped believing in fairy tales a long time ago. One of them was the fairy tale that young Malaysians can contribute to public policy in a meaningful and thoughtful way. But the Tale of Despereaux, and the Malaysian Public Policy Competition has reminded me of one thing: Sometimes, fairy tales … can come true.
Published in on 8th September 2011. Ong Kar Jin is now running at loyarburok and is looking forward to a long and happy career with loyarburok! Long live Lord Bobo!