The Malaysian Insight

WHILE the reintroduction of the goods and services tax (GST) is a good idea to boost the national economy, now is not the time, said economists and taxmen.

They added that the GST, which was abolished in 2018 after Pakatan Harapan came to power, should be reintroduced once the economy is on a stable footing after being battered by the Covid-19 pandemic. 

They urged the government not to rush in bringing back this tax scheme, saying that even next year seems to be too soon.

Universiti Tunku Abdul Rahman’s Assoc Prof Wong Chin-Yoong said the government must take into account the strength of economic recovery if it wants to implement the tax regime next year. 

“If our country’s economic recovery is not as strong as expected, then next year will not be a good time to implement the GST, because this may compromise the momentum of economic recovery,” the economics lecturer told The Malaysian Insight. 

He cited Japan as an example, saying the country had increased the rate of its consumption tax in the 1990s and 2000s when the economy was in the recovery phase.

The ill timing of such a move had however slowed down the recovery process. 

“This is a point that must be considered. Although I think the GST is a good tax system, the timing of the introduction of the new tax system is also very important,” he added. 

Institute for Democracy and Economic Affairs’ senior economist Adli Amirullah said the GST should not be rolled out in the next few years as the focus should be on economic recovery.

“I don’t think it is (a good time). Even next year, is not a good time,” he said. 

“If you ask me, as an economist, I will definitely prefer GST. But if you ask me if next year is the right time to implement GST, the answer is no. 

“Because this year, next year, and even the next two years, we need more recovery plans to help the economy recover after being hit by the pandemic,” he added. 

He believed that Malaysia may face issues with coordinating the tax system, like it did in the past, if the GST is re-implemented next year. 

It takes time to solve such problems and the government might lose focus on spurring the economy, he added.

Tweaks needed in GST 2.0

Chief executive officer and executive director at K-Konsult Taxation Sdn. Bhd, Koong Lin Loong however said there would not be major teething problems with the re-implementation of GST as when it was first introduced in 2015. 

“Businesses already have experience with this tax system. Many companies have invested in the related systems and software from 2015 to 2016, and the government does not have to spend much time on training and hand-holding programmes. 

“The impact will not be as big as it was in the past, and some companies will do even better. 

“The tax system is fairer, and companies can’t evade tax and can operate better,” he added. 

Koong, who is also the head of the taxation committee at Associated Chinese Chambers of Commerce and Industry of Malaysia, said the GST was more transparent than the current sales and services tax (SST) as it can prevent tax evasion. 

“The shadow economy accounts for 21% of the country’s gross domestic product. The government can recover the loss of tax income.” 

He said the last collection for GST stood at RM44 billion, which was higher than the income tax revenue. 

“However, it is not a question of whether the timing is right. The government may have to consider political factors,” he said. 

Wong, on the other hand, said the government might draw flak if it re-implements the tax regime on the grounds of increasing revenue, as it did in the past. 

He said while there was no disputing the effectiveness of the GST, the system must be improved.

“The question is how to make the system more efficient. This includes the reimbursement of outstanding tax amounts. The system can be tweaked in this regard.” 

He said businesses used to pay its entire tax collection to the Customs Department on a monthly basis, and the department will then deduct the amount spent to buy raw materials and reimburse the amount to the company. 

Koong said the department can instead calculate the actual payable amount and only collect that sum instead of going through the extra step. 

This, he said, would also alleviate the company’s cash flow problem. 

He said the people were against the implementation of the GST in 2015 because of the reasons the government had put forward then. 

“The government’s reason was to increase tax revenue. When you mention an increase in revenue, people feel you want to suck their blood.” 

He cited Singapore’s success in implementing the GST as an example.

The Singapore way

He said Singapore’s rhetoric was focused on promoting an effective taxation system, instead of increasing tax revenue. 

“Once the government has hit its income target, the extra tax collected was rebated to everyone,” he said. 

“In that case people didn’t feel the pinch,” he said. 

Prime Minister Muhyiddin Yassin, after chairing his administration’s first cabinet meeting in March, had said the Perikatan Nasional government will look into all options to strike a good economic balance.

This includes reintroducing the controversial GST. 

It also remains to be seen whether new tax regimes will be included in the upcoming Budget 2021, which will be tabled on November 6.

GST was introduced by the Barisan Nasional government in 2015, evoking complaints that refunds were slow and had stifled business growth. 

On the consumer side, the 6% GST had also caused widespread anger among Malaysians and was one of the chief reasons voters had voted out the government in 2018.

The consumption tax was removed by PH shortly after it came into power in May 2018. It was replaced by the SST. – September 27, 2020.