The Malaysian Insight

PUTRAJAYA should reintroduce the goods and services tax to recoup revenue soon after the economy recovers, said a think-tank.

This is among the Socio-Economic Research Centre’s (SERC) proposed medium- and long-term measures to rebuild an economy battered by the Covid-19 pandemic.

As a short-term measure to help businesses, the corporate tax rate should be lowered by 2% from its current 17% for small and medium enterprises and 24% for bigger firms.

Other proposals include continuing institutional reforms to strengthen transparency and good governance, such as by having open tenders for all public sector projects, said SERC executive director Lee Heng Guie.

Putrajaya must also encourage businesses to jump on the digitisation and Industrial 4.0 bandwagon, as e-commerce and automation will give Malaysia a leg-up in terms of international trade.

“It is important to restore consumer and investor confidence in the economy by ensuring political stability,” said Lee in a briefing on SERC’s second-quarter economy tracker 2020.

“Policy continuity and meaningful reforms should take priority to shore up investor confidence and economic sustainability to drive the recovery.

“The government must avoid policy flip-flops that hurt businesses and worry investors. Good sense and strong political will must prevail to reset the national development agenda.”

Worldwide lockdowns and the suspension of air travel to contain the coronavirus are expected to see the global economy registering a -4.9% growth, according to the International Monetary Fund (IMF).

The forecast is worse than the -3% that IMF predicted in April, said Lee.

The global recession will affect Malaysia and weigh down the domestic growth rate, which SERC has forecast at -3% for 2020.

This has forced Putrajaya to introduce two stimulus packages, namely Prihatin and Penjana, involving RM295 billion in cash aid and other assistance for poor families and those who lost their jobs during the nationwide movement-control order.

The packages, which require the government to fork out RM45 billion in direct public funds, include a wage subsidy scheme to help employers retain workers.

Prihatin and Penjana have saved 2.7 million jobs, helped 10 million cash-strapped households and supported about 800,000 SMEs, said Lee.

However, he said, they will also result in the country’s fiscal deficit increasing from 5.8% to 6% of gross domestic product.

As the economy recovers by next year, Putrajaya must resume efforts to bring down the deficit to 4% within three to four years.

To do this, it needs more tax and non-tax revenue, such as higher dividends from government-linked companies like Petronas and Khazanah Nasional Bhd.

GST, which was imposed from 2015 to May 2018, can be reintroduced in 2022 once the economy is on a stronger footing.

“Timing is important. When the economy is more stable and strong, that is the time to introduce it again. In the coming budget, there might be an indication that GST is being considered but introduced two years from now,” said Lee.

He proposed that the government start with a lower rate of 3% to 4% instead of the 6% when the tax was introduced in 2015.

“To ensure that it does not burden B40 households, the government can exempt more items that are commonly consumed from the tax list.” – July 10, 2020.