Malaysian government considering bringing back GST

Malaysian government considering bringing back GST

Malaysia’s Finance Ministry is looking at re-introducing the goods and services tax (GST) in place of the existing sales and service tax (SST), and is studying other possible taxation models.

It has cited the weaknesses of the SST and is considering the implications of bringing back GST.

Economist Manokaran Mottain, Director of the Rising Success Consultancy, told The Star website: “For many reasons, I personally feel that the GST is better than the SST. For businesses, the GST is an easier process of submission of tax claims and for consumers, the implementation of the GST reduced the services tax to 6% from 10%.”

Most importantly, the GST was a more transparent and effective regime compared with SST, he said. “The GST would allow for better monitoring and prevention of tax evasion. The GST has been a favourite consumption tax for many developing countries due to the fact that it is a value-added tax, and it generates higher revenues.

“In Malaysia, when the GST was in force, it collected an average of RM42.7bn per annum ($11.1bn) in revenue between 2016 and 2017. This accounted for approximately 20% of the government’s annual revenue. In contrast, the current SST regime contributed RM27.9bn ($6.6bn) in 2021, shaving almost half of the GST revenue.”

Manokaran said he had estimated that the government may need to allocate an additional RM25bn for subsidies and social assistance, compared with the RM17.4bn initially allocated under Budget 2022.

“Notwithstanding this, it is expected that the government may be able to withstand the additional subsidies needed as it is able to yield higher revenue from the increase in oil prices,” he said.

“However, the additional revenue cannot be channelled for other purposes. In this regard, fiscal balance may worse in the medium term if subsidies offset the potential increment in oil-related revenue.

“If we were to combine the cash handouts, then the impact on government spending is large as cash handouts appears to be a permanent policy feature to support the low-income households. Hence, the idea is that to broaden the tax revenue system – that is reimplement GST.”

He added: “In the long run, the reinstatement of GST would support the sustainability of government subsidies and other social assistance which includes cash handouts for B40/50 household groups.

“The reinstatement of GST should be assessed as a part of holistic assessment of Malaysia’s fiscal position and tax systems. It must be easily manageable and does not increase the cost of doing businesses besides being able to strengthen the country’s fiscal position. At the same time, it should also not hit the B40/50 [low income] groups too hard. Hence, it is suggested that the GST may be introduced at lower rate, perhaps, 3% or 4%.”