1.

0 Introduction
Tax is basically imposed on an individual or corporations that is enforced by the
government. If failed to pay tax, one is punishable according to law. There are different types
of tax which are direct tax includes real property gain tax (RPGT), withholding tax, Stamp
duty Personal income tax, corporate tax petroleum income tax. Where else, indirect tax
includes Goods and service tax (GST), excise duty, import duty, export duty (Lau, 2014). Tax
is consider the major source of government revenue in a country which contributes to the
development and prosperity of a country; and also benefit the benefit both the citizen and
business as a whole. Raising a governments revenue in terms of different types of tax as
mentioned above (UKEssays, 2016). So, taxation is an important factor to the government,
country and the citizen. The discussion on how tax is impacted and its relationship with
national development, national debt, corruption and social welfare; and on how the issues
have affected taxation will be explain.

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2.0 National Development

National development is explained as the ability of a country to develop the social welfare of
the people. For instance, providing social facilities such as quality education, transportation
infrastructure, medical care and etc. National Development (NDP) was introduced by Malaysias
formal Prime Minister, Tun Dr. Mahathir bin Mohamed. The main objective of the
implementation of National Development to improve economic and into a develop country.
Moreover, economic and social development can be achieve with a strategic National
Development. However, national development also need the support of tax to succeed (Suhaimi,
2013)

For a country, taxes are the major source of revenue for development plans and financing
its budget. To reduce the gap between the lower income group and the high income group, fiscal
policy and taxation method used and increase investment growth and economic growth. To lead
to a higher living standard, tax revenue are used increase the rate of economic growth and per-
capital income. GDP is used as a measurement of economic growth (Yusof & Bhattasali, 2008).

2.1 Gross domestic product (GDP)

GDP is a broad measurement of a nations overall economic activity where it includes public
and private consumption, investments, net exports and government expenditures. GDP is usually
used as an indicator of economic health and living standard. In 2016, Malaysias GDP on the 1 st
quarter (first 6 months) is at 4.1%, which has decrease compared to 2015 it was at 5%. It is
expected to remain on the existing growth trajectory of 4%-4.5%. A declining GDP means the
economy of Malaysia has a Negative growth rates which is the result of decreasing wage growth
and overall contraction of money supply. *refer to appendix table 1. However, GDP in the 2nd
quarter is also increasing gradually, which helps to increase economic growth and improve
national development. *refer to appendix table 2 (Kok, 2016)

However, implementation of GST has some benefit of GDP, because it help to increase
profitability in business which eventually increase GDP and investment growth. Malaysian
government is reliant on the tax revenue, the relationship between government spending and tax
revenue is positive, because it will eventually increase government revenue. (Suhaimi, 2013)

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3.0 National debts

National debt is where a countrys government has borrowed a sum of money for various
reasons. There is an interest that need to be paid for the amount of borrowed money. National
debt increase when the government did not collect sufficient revenue to cover its expenses.
Government spends the borrowed money to develop the country such as building roads, bridges,
military and etc. To cover the expenses, government collect revenue from citizen and companies
such as income and corporate tax, and revenue is also collected form the fees that the
government imposes including passport and visa, student loans and etc. Taxation palys an
important role, since tax revenue helps to decrease national debt. (Koba, 2011) The national debt
currently is around at RM647 billion. However, the number does not stops there, it is increasing
by every second (National Debt Clocks, 2015). GST is one of the tax affect the country and the
consumer in a different way.

3.1 GST

GST is a consumption tax applied on goods and services covering all sectors including
production and distribution stage in a supply chain (Shire & Clarke, 2016). Goods and Service
Tax (GST) was implemented and effective from 1 April 2015 with a fixed rate of 6%; and certain
necessary goods are exempted from GST (Ariel, 2014). The previous consumption tax Sales and
service Tax (SST) is replaced by GST. However, GST reduce numbers of indirect taxes. Due to
how SST is implied, consumer are paying double tax including at the manufacturing and service
stage.

3.1.1 The effect of GST on Consumer

Due to the indirect impact of GST, private consumption is falling because households are
having less money. (Naidu , 2015) The tax burden eventually falls on the consumer and not on
production, because GST is a consumption tax. Moreover, GST only result in the increase of
prices in certain products (Palil & Ibrahim, 2011). Due to introduction of GST, Lower income
group has a more profound impact opposed to higher income group and reduce the ability for
lower income group to purchase goods and services.

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3.1.2 The effect of GST on the Country

The positive side of GST is that the government is able to maintain its revenue base and
the economy because the macroeconomics polies are stable which eventually attracts
international business to invest in Malaysia (Naidu , 2015). GST is introduced to aim at
diminishing the countrys increasing budget deficit and improve revenue collection. The main
objective to implement GST because it is comprehensive in scope where it covers a wide-range
of goods and services and it is a stable source of a nations revenue (Ilias & Abdul Mansor,
2013). Besides that, the government needs to build surplus for economic downfall in advance. If
the country continue to raise debt to finance its deficit, the country will go into a debt trap
because the country has been stuck with fiscal deficit for more than a decade (Palil & Ibrahim,
2011). It also a method that diversified government source of income, and provide the
government with a constant stable flow of income. Plus, it eventually increase the governments
ability to raise public services and improve economic stability.

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4.0 Corruption

Corruption is define as the misuse of power, wealth and status for private gain such as by
the elected politician or appointed civil servant, government and etc. (TI , 2016). On tax revenue,
corruption has a negative impact on it. It affect the country in many way including the downfall
of GDP ratio, reduce investors confident which reduce investment, misrepresenting tax structure
and affect economic and national development. Complications such as weak tax administration,
improper tax evasion and exemptions will occur because of corruption. In Malaysia, the issue of
1MDB scandal is a corruption and it is still affecting the country and the economic.

4.1 1MDB

1 Malaysia Development Berhad which is a state investment fund, is one of the largest
corruption. 1MDB known as 1 Malaysia Development Bhd was primary set-up by our current
prime minister Datuk Sri Najib Tun Razak back in 2009. 1MDB was initially meant for the
development of Kuala Lumpur into a Financial Hub and improve economy through strategic
investment. However, in 2015, it begun to attract negative attention due to the missed payment
which owed to the banks and bondholders. Currently, 1MDB borrowing increase over 50 billion
ringgit as of January 2016 (Adam , 2016).

4.1.1 The effect of 1MDB on the country.

Currently, the 1MDB scandal is affecting the economy of Malaysia which has resulted in
investors pulling-out their short term investment due to the fear of 1MDB fails to settle its debt
and uncertainty (Habib, 2015). Other than that, this has reduce the confident of investors
investing in Malaysia despite the fact that Malaysias currency has depreciate. (Chen , 2016).

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5.0 Social Welfare

Social Welfare is a social service provided by the government to its citizen to improve their
living standard or well-being including education, healthcare, housing and etc. The relationship
between taxation and social welfare plays an important role in the society. The government uses
tax revenue to improve and develop the country.

Since the country braces an infrequent inflation because of the implementation of GST and
the removal of petrol subsidiary in 2015, the consequences of lacking financial assistance could
be immense and with all this implementation lower income group are suffering. So, 1 Malaysia
concept is introduced where there are few welfare program provided by the government to ease
Malaysian citizen lives which includes 1 Malaysia Peoples Welfare Program (KAR1SMA), 1
Malaysia Peoples Shop (KR1M), 1 Malaysia Clinic, 1 Malaysia Peoples aid (BR1M) and etc.
(1 Malaysia, 2016).

5.1 1 Malaysia Peoples Shop (KR1M) and 1 Malaysia Clinic (K1M)

To provide basic medical care for the urban poor group, Klinik 1 Malaysia (K1M) was
launched in 2010 by the government. For Malaysian whom are in need of basic medical needs,
this initiative provides an immediate healthcare with qualified nurses and medical assistance with
at least five years of experience. As for medical fee, Malaysian citizen are able to get treatment
for just RM 1 per visit and senior citizen are exempted from any payment. (Hassan , 2015)

Lower income earners has access to cheaper groceries with the existence of 1 Malaysia
shops and KR1M certainly reduce the burden of average Malaysian. Contrasting from the items
sold in other stores and hypermarkets in Malaysia, KR1M goods are sold at 30 per cent to 50 per
cent cheaper in comparison. In other words, the product services are cheaper than market rates.
Besides, it acts as a medium for the government to control basic necessities prices and allow to
reduce the monopolization of products by the multinational manufacturer.

5.2 1 Malaysia Peoples aid (BRIM)

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 BRIM is also known as the Bantuan Rakyat 1 Malaysia program started in 2012 and devised
by Prime Minister of Malaysia Datuk Seri Najib Tun Razak. It was implemented as a part of the
governments effort to reduce the burden of lower income group due to the high cost of living
where Barisan National has allocate and disbursed large amount of money for the welfare
system. To be eligible for BRIM, individual need to apply for it and the household income of
receiver need to be lower than RM4, 000 (BRIM, 2015). *refer to appendix table 3 for
allocation of BR1M.

Plus, BRIM is a targeted subsidiary where the inflation can be managed appropriately
without free market forces being stifle. However, the implementation of BRIM brings some
financial relief to the society without harming the country (Sensible , 2014).

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6.0 Conclusion

As all the issues from National development, national debt, corruption and social welfare
has been discussed, the advantages and disadvantages of tax are clear on how tax is impacted. To
summarize, consumer, business, investors, government are all affected due to tax whether it
increase or decrease. Despite the advantages it bring including higher tax revenue thats allow
the government to reduce debts and improve the economics. However, it is hard for users to
adopt to changes and it can cause a lot of dissatisfaction; and hard for them to ignore the
disadvantages causes including reduction in purchasing power where lower income group are
suffering from the high prices.

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8.0 References

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