Getting the people to support revival of GST

PRIME Minister Datuk Seri Ismail Sabri Yaakob’s announcement that the government is considering reintroducing the goods and services tax (GST) is a welcome one. International agencies familiar with the Malaysian economy have also been suggesting that GST be brought back to strengthen the revenue system and thereby reduce the fiscal deficit.

Over 140 countries in the world have implemented GST, or VAT (value-added tax) as it is called in some nations, because being a broad-based tax on consumption, it is a powerful revenue earner.

There will be some public opposition to the reintroduction of GST, as many would first like to be convinced that the government can spend the people’s tax money wisely and responsibly.

Therefore, in order to get a buy-in to the GST, the PM should give a categorical assurance that there will be an institutional system of checks and balances through the select parliamentary committees. This would enable Members of Parliament to monitor how the revenue is spent and to hold the Cabinet ministers and their civil servants accountable for any leakages, wastage or unethical conduct in any ministry.

Select committees should be appointed to cover all the ministerial portfolios. Operational matters should also be cleared through the designated committee.

For example, if a ministry proposes to award a project in the budget through direct negotiation instead of open tender as required under Treasury instructions, it must get approval from the designated select committee to depart from the normal procedure. The committee should not accept lame excuses for not complying with the established procedure even if it’s a Cabinet decision.

Most of the deviations from Treasury circulars occur in off-budget agencies, namely statutory bodies and government-linked companies, and in off-budget mechanisms, namely PPPs (public-private partnerships) and PFIs (private finance initiatives). They too must be brought under the surveillance of parliamentary select committees even though their finances are outside the budget.

As far as the public are concerned, even though they are self-financing and have their own governance system under their board of directors, the money is public money.

With the institutional system of parliamentary controls in place, Malaysians should welcome the reintroduction of GST.

This time, the starting rate should be low, perhaps at 3% or 4% for the first two years, and to be increased by 2% every two years until it reaches the optimal rate of about 8%-10% a few years down the line.

As the GST revenue growth makes the fiscal balance healthier, the government should consider restructuring the whole tax system to make it more progressive, and taxing the income of the rich more heavily.

GST is not a complicated tax as long as the government does not make the same mistake of giving too many exemptions when it was introduced in 2015. When too many loopholes are made, tax compliance becomes complicated, especially for businesses claiming refunds on the tax paid on their inputs.

Not all traders and manufacturers can afford to spend on tax consultants to navigate through the six-digit Standard International Trade Classification (SITC) code used by all customs departments in the world. Those SMEs who could not fill in the correct SITC code to claim for the refunds will blame the Customs Department for the delays.

GST should be made simple to implement by not playing politics with exemptions, which should be limited to school books, baby food and essential medicines only. The fewer the exemptions, the more effective the GST will be as a consumption tax.

TAN SRI MOHD SHERIFF MOHD KASSIM

Kuala Lumpur