GST reintroduction: YAY or NAY?

KUALA LUMPUR: Three years after the Goods and Services Tax (GST) was abolished in Malaysia, the country is now back at the juncture of organisations asking for the tax to be reintroduced.

Are we going on the merry-go-round of endless debates on whether it is yay or nay for the tax, or is it just not the right time?

Datuk Dr Madeline Berma

Universiti Malaysia Sarawak (Unimas) Honorary Professor, Datuk Dr Madeline Berma opined that with the ongoing health crisis brought by Covid-19, it would be wise to replace the Sales and Service Tax (SST) with GST in Budget 2023 onwards.

She said the government could reintroduce GST because the broad tax base system would increase indirect taxes and give flexibility to reduce direct taxes (personal income tax and corporate tax) to make Malaysia a more attractive business destination.

“To improve the GST implementation and consumer acceptance, I think it should be reintroduced at a lower rate from the six percent that was previously set.

“Although GST is more efficient and transparent than SST, it is however not possible to implement it now as most businesses are either hard hit or facing closure, having reduced sales and income, and people are struggling with the high cost of living and the increased unemployment rate in this country,” she told Bernama.

Meanwhile, Deloitte Malaysia Indirect Tax executive director Senthuran Elalingam said it is important that the reasons for implementing tax reforms are adequately discussed so that there is adequate awareness of the need for change and the benefits.

“A wider review of the tax system is required, and GST should be considered as part of that review. Implementing new taxes needs consultation and buy-in from the business and the public for it to be successful,” he said.

Senthuran noted that as the Organisation for Economic Co-operation and Development (OECD) has recommended, a broader review of Malaysia’s tax system will be needed to address the fiscal imbalance caused by the pandemic.

“All options should be on the table and thoroughly evaluated, and GST as you would expect, would form part of that discussion.

“In the medium to longer term, replacing SST with GST from a tax policy perspective makes sense. There are significant challenges to widening a single stage tax like the SST.

“Recent attempts to widen the scope have resulted in a lot of unintended consequences such as multiple levels of tax being paid and confusion on scope. Any decision to widen SST would need very careful considerations,” said Senthuran. 

He also said reintroducing the GST would remove all current challenges faced with SST and will give the government a lot more scope to widen the base.

“That being said, as Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed has noted, timing is critical, and it is important that businesses are given time to stabilise post-pandemic before needing to implement new tax systems,” he added.

The OECD has recommended that Malaysia brings back GST among others in the 2021 OECD Economic Survey of Malaysia to stimulate economic revival and put the country’s economy back on a firm footing post-pandemic.

The GST was first implemented in Malaysia on April 1, 2015 at a 6 percent rate.

GST was later suspended on June 1, 2018 and ultimately abolished as it was replaced by the SST system from Sept 1, 2018.

The current tax rate for sales tax is 5 percent and 10 percent, while the service tax rate is 6 percent. – Bernama