KUALA LUMPUR: The abolition of the Goods and Services Tax (GST) will leave the Government with three options that could hurt the country's economy, said Permodalan Nasional Bhd chairman Tan Sri Abdul Wahid Omar.
He cited the choices as raising income tax or introducing a new tax such as capital gains tax; increasing the country's fiscal deficit to 5%; or reducing spending, including development expenditure.
“This means scrapping or suspending development projects that have been approved previously,” he said in a statement.
He said the three options were dangerous as they could affect the capital market and result in the ratings of the country's international debt credit being downgraded to BBB from the A3/A level.
“This will certainly increase borrowing costs and harm the country's economy," he said.
Wahid, who was a former Minister in the Prime Minister's Department, said the original purpose of the GST was to widen the tax base of the nation as Malaysia had only two million income taxpayers then, a small number against its population of 30 million.
The introduction of the GST was also in line with the fiscal consolidation measures targeting a balanced budget in the medium term, he added.
“With the increase in government revenues, we have not only reduced our fiscal deficit, but also implemented many of the previously delayed development projects such as highways, roads, bridges, schools, hospitals, rural clinics, and others.”
Wahid described the proposal to abolish the GST and revert to the old tax system – Sales and Service Tax (SST) – as a step backward or “regressive” and could hurt the economy.
“This is because the GST collection in 2017 was RM42bil and is expected to increase to RM44bil this year compared to the SST collection of RM17bil in 2014,” he said.
He said if the GST were to be abolished, there would be a shortfall of RM27bil in revenue, constituting 2% of the GDP. — Bernama
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