KUALA LUMPUR – The Goods and Services Tax (GST) could be reintroduced through the Fiscal Responsibility Bill, according to Wellian Wiranto, OCBC Bank’s economist.
This was following the announcement made by the Minister of Finance, Tengku Datuk Seri Zafrul Abdul Aziz, that the ministry is considering to table the bill at the upcoming parliamentary session to be held starting July 18, to include measures to broaden Malaysia’s tax base.
Wellian stated that implementing the Fiscal Responsibility Act could path the way for GST reintroduction, to which he suggests should be starting with a “more palatable” rate of 4%.
In a recent statement, he explained that the increasing commodity prices would act as a double-edged sword since it caused an unanticipated RM30 billion increase to the government’s subsidy costs, ranging from petrol to cooking oil.
Furthermore, he said what is crucial is that the Finance Ministry (MoF) revealed that the revenue increase from commodities was insufficient to balance the spike.
Should commodity prices continue to increase, the fiscal gap may be wider than the gross domestic product forecast of 6% for 2022, he added.
In addition to that, Wellian stated that the Prime Minister Datuk Seri Ismail Sabri Yaakob had expressed his support for the GST, acknowledging that this tax regime is unpopular but there are limited alternatives.
Therefore, investors shouldn’t be too surprised should the government decide to once again use GST in order to reduce the deficit, he continued.
Despite that, Wellian also cautioned that with the upcoming general elections that must be called by September 2023, the timing to roll out GST would be tricky, given that Malaysia’s economic recovery is just gaining traction coupled with inflation becoming more perceptible all around.
Which is why he believes that the government would likely start the rate at 4%, should GST be reimplemented.
Given that the first time GST was rolled out showed the system being plagued with delays, he also believes that the government would have a difficult time to convince businesses that there is a better system in place. The backlog of refunds caused by the delays had a total of RM19.4 billion.
In a review, the first time Malaysia had rolled out GST was in April 2015 at the rate of 6%. This was done under the administration of former Prime Minister, Datuk Seri Najib Tun Razak.
In 2017, GST had contributed over RM44.3 billion, which is more than 20% of the country’s revenue that year.
However, in 2018, the Pakatan Harapan administration decided to implement the currently used Sales and Services Tax (SST) system, the statement added.
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