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GST U-turn unnecessary, but SST can be improved

KUALA LUMPUR (Oct 4): The prime minister’s statement yesterday that the government will study if there is a need to reintroduce the scrapped goods and services tax (GST) — the removal of which was one of Pakatan Harapan’s key pledges in the 14th general election (GE14) — is unlikely to gain traction among the rakyat.

Doing so may also lead to price increases and profiteering again on top of the government being accused of flip-flopping on its policies and causing the loss of business confidence, tax experts told The Edge Financial Daily.

Instead of doing a U-turn, the government should instead look into ways to make the sales and service tax (SST) it reintroduced to replace the GST more efficient, or incorporate some attributes of the GST into the SST regime to make it a more robust one, with better enforcement, said tax consultant Dr Veerinderjeet Singh, who is the chairman of Axcelasia Inc.

“One reason the SST revenue is lower than what was generated by the GST is that the scope of items covered by the SST is much lower than what was covered by the GST. If we can enhance and widen the scope and tax base of the SST and enforce it well as well, as tweak it into ensuring that cascading of prices is curtailed, then we should see an increase in tax revenue,” Veerinderjeet told The Edge Financial Daily.

If the government was worried about its spending needs amid its RM1 trillion worth of total debt and liabilities, the current tax regime shows revenue collection would be enough to cover its operating and development expenditures without having to revert back to the GST, according to Affin Hwang Investment Bank Bhd chief economist Alan Tan.

“The current government’s revenue collection is substantial, [so] even without the implementation of the GST, the government is still on track to achieve the fiscal deficit of 3.4% this year and 3.2% next year,” Tan said.

The government expects RM22 billion from the SST to be collected this year. Up to June 30, it had collected RM13.3 billion, based on Bank Negara Malaysia data. In contrast, the GST collected RM20.24 billion in January to May 31, 2018.

 

‘Context of Dr M’s comments needs to be understood’

Prime Minister Tun Dr Mahathir Mohamad was reported as saying at an event yesterday that the government would look at the reintroduction of the GST if the people want it back. “If people believe it is better, we will study it. We will study if it (the GST) is better than the SST,” he was quoted as saying. When asked if the government could announce the reintroduction of GST in Budget 2020, he said that would be difficult, as the federal budget would be tabled next week, on Oct 11. “Maybe we can do it later,” he said.

In an immediate response, Deputy International Trade and Industry Minister Dr Ong Kian Ming said conducting a study on the reintroduction of the GST does not mean the system will be brought back for certain.

The context of the Dr Mahathir’s comments also needs to be understood, Ong said. “In response to an economist’s suggestion that we should perhaps study it, Tun Dr Mahathir said we could study it if the people want the GST to be reinstated. However, if the people do not want a return to the old system, the people’s voice will be heard and it will not be brought back,” Ong reportedly said at an event in Ipoh.

The GST, which was implemented by the previous Barisan Nasional (BN) administration at a 6% rate, came into effect on April 1, 2015. It was zero-rated for three months from June 1 last year, following Pakatan’s historic victory against BN in GE14, before being replaced by the SST on Sept 1.

On Tuesday, the Malaysian Institute of Economic Research suggested that the GST be brought back in its Budget 2020 wish list, saying it was more effective and fairer than the SST.

 

‘No tax system is perfect’

Should the government be serious about reintroducing the GST, a holistic consultation with all stakeholders — including tax agents, businesses, manufacturers and investors — has to be done, said Grant Thornton Malaysia executive director of indirect tax and GST Alan Chung.

Weaknesses in the old system must also be addressed, he said, citing as example the RM19 billion worth of tax refunds that were not returned, which had shaken businesses’ confidence in the government’s 14-day tax refund promise.

“No tax system is perfect, [like laws], so that’s why there are laws that have to be changed,” said Chung. Though he did not indicate whether he was for or against the reintroduction of the GST, he noted: “What the people want is [a tax regime] that reduces the cost of living, which is unrealistic.” Affin Hwang’s Tan said the reintroduction of the GST is more about shifting the dependence on direct tax to indirect tax, and bring down corporate income tax to make Malaysia more competitive. And the GST would not result in a tax cascading impact that could lead to higher prices, he said.

And given that businesses have implemented the GST before, compliance cost will be a lot lower than when it was first introduced in 2015. The government’s administrative cost will likewise be lower, said Tan.

The issue is whether doing this U-turn is “politically acceptable”, said United Overseas Bank (M) Bhd senior economist Julia Goh. But expanding the indirect tax base with the GST “will solve the problem of being reliant on the small percentage who pay taxes, which discourages productivity”, she added.

This article first appeared in The Edge Financial Daily, on Oct 4, 2019.

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