Budget 2022: Malaysia needs GST to weather turbulence ahead, say experts

KUALA LUMPUR (Nov 2): Panelists at the Malaysian Economic Association (MEA) 2022 Post-Budget Dialogue were mooting for the reinstatement of the Goods and Services Tax (GST) or the inclusion of a similar tax structure under the current tax regime in order to widen the government’s tax revenue base to prepare for turbulent times ahead.

During the session, Centennial Asia Advisors chief executive officer (CEO) Manu Bhaskaran said that there will be a period of “great financial turbulence” for Malaysia and the global economy going forward, as there is bound to be consequences to the extraordinary quantitative easing, printing of money and low interest rates we have seen over the past decade.

He added that there will also be greater demands on the government to address issues of job displacement that will affect segments of the workforce and the small business sector, as technology continues to progress and disrupt incumbents.

“All these things will cost a lot of money — the fiscal position of the government will come under strain and this is where the concern lies with Malaysia currently, that whether the country can have the revenue base needed to fund these extraordinary demands without a tax system like GST.

“I really do believe there is a need to broaden the tax base. Virtually all countries around the world have a VAT (value-added tax) or GST which contributes greatly to their revenue base,” he said.

He added that the GST does not have to be a regressive tax as many fear, adding that if the funds raised are geared towards helping the poor — such as offering assistance to lower income households to offset the impact on them — the net effect would not be regressive.

Malaysian Institute of Economic Research (MIER) chairman Tan Sri Sulaiman Mahbob, who was moderating the discussion, then posed the question to National Budget Office director Datuk Johan Mahmood Merican, who was among the panelists, on whether the government is looking at implementing GST.

“If we are to reintroduce it, we have to make it more efficient. I think one of the key issues that arose during the past implementation was around the refunds.

“There are no immediate plans at this stage of the economic recovery to introduce something that is so broad-based, but certainly, rest assured that my colleagues in the tax department are always ready to introduce it when the right time comes,” he said.

Meanwhile, Tricor Malaysia chairman Dr Veerinderjeet Singh said reinstating GST is not the only solution to the country’s tight fiscal position, and suggested for the government to consider the existing Sales and Services Tax (SST) and gradually expand it to cover more services over time and then integrate it to have the attributes of GST.

He said there would have to be some forms of harmonisation in order to have this in place, which might take a three-year plan.

“If we could cover all the goods and services under the current SST, I dare say — assuming there’s compliance and good enforcement — that we’ll collect the same amount we would collect under the GST,” said Veerinderjeet.

Veerinderjeet pointed out the reality that no one wants more taxes. Hence, according to him, to minimise the grouses the government will need to have the right timing to implement it.  

“This can only be done when the economy is on the growth path, or maybe even higher minimum wages, so that the people would be more willing to support it,” he said, adding that most of the world has moved towards consumption taxes and that Malaysia should do the same.

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