Working out reasonable rate for GST

  • Letters
  • Monday, 07 Oct 2019

AS I have highlighted the importance of adopting the Goods and Services Tax (GST) many times, I would be very excited to hear Prime Minister Tun Dr Mahathir Mohamad say that there is a need to bring back this tax regime.

There was a suggestion that the reimplementation of GST shouldn’t burden the rakyat, hence the rate should be brought down to 3% from the previous 6%.

The abolition of GST has resulted in an annual shortfall of RM22bil for the government, as the Sales and Service Tax (SST) could only rake in around RM22bil, approximately half of the GST’s annual collection. Obviously, the government has to cover the shortfall.

Our country has been running on a budget deficit for many years. Malaysia’s national debt rose to RM1.09 trillion in 2018 from RM1.08 trillion in 2017 based on accrual basis. This was reported recently by Datuk Seri Mustapa Mohamed, chairman of the Special Select Committee on the Budget.

If no proactive action is taken by the government to address the persistent budget deficit, it won’t take long for the national debt to increase to RM1.10 trillion.

If the government were to reimplement GST at 3% as recommended, a rough calculation indicates that the annual collection would be around RM22bil, which is half of the previous GST annual collection. Thus, the existing shortfall would remain unchanged.

Based on a 6% GST rate and the annual collection of RM44bil, for every one per cent reduction, the government would collect RM7.3bil less yearly. Therefore, it has to start at 5% and go up to 6% gradually.

Let’s not forget that businesses would have to bear the burden of reviving the system implemented in 2015. Bear in mind, too, that many essential goods were zero rated in our GST system. In a GST environment, one has to shoulder more burdens when one consumes more.

Has the Prime Minister forgotten his vision to turn Malaysia into a developed nation by 2020? If he doesn’t have the political will to bring back GST, he may have to change his target to 2040.


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