FOUR years after it was nixed, the Goods and Services Tax (GST) could be back – and for many Malaysians, that seems like bad news.
However, experts say the GST is a good tax as it will mean the government will have more money in its coffers to spend on the people.
The problem, however, is in its implementation. And even if properly implemented, there will be a one-time jump in prices, which could hit consumers where it hurts most.
“Things are already expensive. GST is broad-based and it will mean that we have to pay taxes on more items and services. It will be a burden,” said Rina, a 36-year-old freelancer, who was not keen on return to the GST regime.
Business executive Nurul, 35, however felt it was good that the government gets more money in its coffers.
“They will have more money to spend on welfare and development,” she said.
However, she noted that the government must ensure that any leakage is prevented and ensure that the people can see the benefits with the spending from the tax revenue.
That was the problem when the GST was first implemented in 2015. There were issues over the refund process, which caused businesses to hike up prices along the supply chain.
Businesses were unhappy over the tedious claims and refund system, the tax became unpopular and people even took to the streets to protest its implementation.
However, GST has been implemented successfully in many countries.
For the record, the government raked in RM44bil in GST after 2015 but the Pakatan Harapan government, which abolished it, was not able to raise enough revenue through the sales and service tax (SST).
This led to a shortfall of revenue which the government says is to the tune of RM20bil.
The big question, though, is: Is this the right time to implement the tax regime? After all, the economic conditions are not favourable.
The government is in no rush to force GST down the people’s throats.
Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz has said it will take at least nine months after approval in Parliament before GST can be reinstated while Prime Minister Datuk Seri Ismail Sabri Yaakob said the move was only being studied and no decision has been made.
Sunway University Economics Professor Dr Yeah Kim Leng said that if GST was to be introduced, it would likely result in a one-off impact on inflation but the magnitude could be moderated by setting a lower rate than the previous 6%.
“Although it is not desirable to implement GST in a rising inflation environment, the consumer price inflation projected for this year remains relatively benign at 2.2-3.2% ,” he said.
“The GST will enable the government to broaden its tax base and increase revenue substantially.
“It will help to narrow the fiscal deficit and allow the government to increase spending to counter any domestic or global economic shock.”
He admitted, though, that the tax may be disruptive to businesses which are already struggling to cope with the negative impact of the prolonged pandemic and the Russia-Ukraine war,” he said.
However, Dr Yeah said the GST was superior to SST in many ways.
The right time to implement, he said, would be when conditions are more favourable – economic growth and inflation has to be stable, unemployment rate low and wage and income growth positive.
Dr Yeah said there were other options that the government could look at in the meantime, like raising corporate and individual income tax rates and imposing taxes on capital gains, inheritance and carbon or pollution.
“The government can also raise revenue by selling assets and government-owned companies and privatisation of selected public services,” he added.
Malaysia University of Science and Technology economics professor Geoffrey Williams said the government must learn from the past and fix problems, especially for micro-SMEs.
If GST were to be rolled out now, he said it would not only add inflationary pressure, but would also be disruptive to economic recovery and cause a huge political debate, diverting from immediate issues of concern like food security.
“The GST should be part of a wider tax reform. Anyway, we don’t expect any major tax changes until after GE15,” he said.
The right time to re-introduce GST, he said, would be when recovery becomes more stable after the general election.
Williams proposed a reform in the taxation system, which would involve reducing other taxes but would include a separate tax on luxury goods.
He said a tiered GST must also be avoided.
He noted that while taxes are generally imposed on income or on spending, in many countries including Malaysia, income taxes are easy to avoid.
However, people do not avoid spending.
He said consumption taxes like GST will allow income taxes to be reduced on individuals, households and companies while the extra revenue from the tax collection can be redistributed to the lower income bracket through a negative income tax or tax credit system.
“Taxes for companies should be reformed too. Many SMEs deliberately declare zero profits to avoid taxes.
“Large companies reallocate profits using transfer pricing to avoid taxes so many wind up paying less tax than their employees. This needs to be addressed,” he said.
This is why GST is only part of the solution,” he added.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said if GST 2.0 is to be implemented, the government must ensure that the people are well-informed.
“It’s not about getting the prices of goods and services lower. Its about being efficient in collecting taxes and to avoid a shadow economy from prospering.
“There must be measures to minimise the impact to the low income group, such as cash transfers and targeted subsidies,” he said.
