PETALING JAYA: When the economy starts to stabilise, with focus turning to rebuilding the economy ravaged by the Covid-19 pandemic, the debate on whether the goods and services tax (GST) should be reintroduced is likely to crop up again.
The GST, which was repealed in 2018 and replaced with sales and service tax (SST), was a stable source of income for the government during the 2015-2017 period.
With the slump in oil price last year, contributing less to the government’s overall coffer, the issue is whether the government can overcome the economic downturn with existing revenues’ scheme and without relying on additional national debt, said MIDF Research in a thematic report discussing the potential return of GST.
Proponents of the GST said its introduction in April 2015 was rather timely as the RM41.2bil collected in 2016 had more than offset the decline in petroleum income to RM8.4bil in that year after the oil price rout in 2014/2015.
Based on the full-year implementation, the GST had cumulatively contributed RM85.5bil in 2016 and 2017. In comparison, the total cumulative revenue from petroleum-related income stood at RM10.9bil in the same two-year period, noted MIDF Research.
It was reported that the finance ministry has set up a committee to review the feasibility of bringing back the GST.
However, any change in the tax structure in today’s environment, which is still facing headwinds from the pandemic, would impact struggling businesses, according to AmBank chief economist and head of research Anthony Dass. (pic below)
Citing the refund issue, he said slow refunds during the previous GST regime had impacted business cash flows.
“Can businesses in today’s challenging environment sustain any delay to refunds, given that they are already struggling with their cash flows?” he asked, in an interview with StarBiz.
Tricor Malaysia chairman Dr Veerinderjeet Singh said while the GST would be an appropriate measure to introduce as part of the tax reform measures, it is not something that should be rushed into.
“The reality is if we bring back the GST like what it was, we will again see price increases and profiteering mainly because of the lack of awareness or total ignorance, ” he added.
The more immediate focus, the tax expert said, “should be looking into making the SST more efficient, while we study the benefits of GST”.
Veerinderjeet (pic below) believes that the current SST, which covers only 38% of goods and services, can be slowly widened. Based on this, the revenue generated by the SST is only about RM24bil, while GST generated RM44bil.
“The sales tax is also imposed on the manufacturing level, while the service tax is at the retail level under the SST. Naturally, the revenue generated will be lower because the manufacturers’ prices are always lower than the final retail selling prices, ” he explained.
He said the SST and the GST at 6%, respectively, covering the same scope of goods and services would produce the same amount of tax revenue, assuming all will comply with the law and the authorities are able to enforce it effectively.
That said, the GST is seen as more superior for its inbuilt mechanisms, which allow for more robust auditing and checking.
“As such, we should be looking at progressively converting the SST to have some of the attributes of the GST so that it is more robust, plus we need to enforce it well, ” Veerinderjeet said.
AmBank’s Dass said if the SST is retained and its coverage widened, it could help compensate for the loss of revenue of RM7bil from the GST, which had covered 78% of goods and services based on 6% tax.
Apart from this, the government should look at ways to minimise the tax cascading effect, which is more prevalent under the SST.
“Under the current circumstances, what Malaysia needs is just ‘sustainable’ tax structure. And the tax structure to be decided should not be cancelled within a short period of time, like in the GST case, as this would turn investors away and cause confusion to the people and businesses, ” Dass said.
The country’s tax-to-GDP ratio fell to 12.03% in 2019, while the adverse impact due to the Covid-19 is expected to bring the ratio down to 10.6% in 2020.
According to Dass, developing economies have a tax-to-GDP ratio of around 15%, while the average for developed nations is around 40%. In 2013, Malaysia’s tax ratio stood at 16.6%, but it has been on a declining trend since then, added Dass.
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