‘Return of GST must be on merits’

PETALING JAYA: The decision to bring back the goods and services tax (GST) should be based on its merits and not just to increase the country’s tax revenue, say economists.

Tunku Abdul Rahman University of Management and Technology senior lecturer and chairman of the Centre for Business and Policy Research, Dr Foo Lee Peng, said more aspects should be considered before reintroducing GST, such as its total social impact through a holistic study of tax and revenue reform.

“GST was seen as capable of widening the country’s revenue base. However, the decision to re-impose GST should be based on its merits.

“For example, a more transparent and resilient system needs to be established to expedite refunds for businesses,” she said here yesterday.

Recalling Malaysia’s unpopular implementation of GST in 2015, Foo said it was due to “poor execution”, especially among the B40 and M40 groups.

Although people from these income groups benefited from various forms of cash aid, it was not enough to offset the negative perception of GST.

“The burden is felt more because people cannot evade or avoid it,” said Foo.

Nonetheless, she added, consumers’ perception of GST had been generally inaccurate as GST would be refunded to all parties at various stages of production.

“New tax reform creates uncertainty about future expenditure; uncertainty causes resistance and challenges the government’s initiative to impose new regulations. It is essential to educate the public on the expected outcome of the new tax initiative,” Foo said.

Since Malaysia was still recovering from the pandemic and grappling with various economic challenges, she said it was better to reintroduce GST at a lower rate later.On Thursday, Deputy Finance Minister Datuk Seri Ahmad Maslan said in Parliament that the government could have an extra RM25bil in revenue this year if GST was implemented, compared to the current sales and services tax (SST).

He said when GST was previously implemented, Malaysia collected taxes amounting to RM37.9bil in 2015, RM59.3bil in 2016, RM67bil in 2017 and RM36.7bil in 2018 before it was abolished that year while net revenue was RM27.3bil in 2015, RM41.2bil in 2016, RM44.3bil in 2017 and RM20.2bil in 2018.

However, he noted that the government had no plans to implement GST at the moment.

Weighing in, Malaysia University of Science and Technology professor Geoffrey Williams said there was no definitive research on the benefits of GST compared to SST, or even a harmonised sales and services tax (HSST).

“It is widely acknowledged that the earlier version of GST had problems that need to be solved.

“All this has not been fully studied in depth,” he said, adding that jumping on the GST bandwagon can cause harm, especially to low-income groups.

Citing Malaysia’s “inefficient” tax system, Prof Williams said there was no “most effective and efficient rate” until the country had better knowledge of the system.

To allay public fears, he said it was best to do a full study and show the full impact by income groups.

When asked, Prof Williams said there was no proper estimate of the best GST rate compared to what it was before.

“Those calling for the reintroduction of GST are suggesting rates that they feel are acceptable with no hard evidence.

“This is the biggest lesson to learn – do not have ad hoc changes in tax. There must be a full study and a full reform. Otherwise, it will cause more problems than it solves,” he added.