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CNA Explains: Why is Malaysia considering the reintroduction of GST and how receptive are businesses?

GST was a hot button issue in the run-up to Malaysia’s 14th General Election. Pakatan Harapan (PH) promised to abolish the tax if it took power. During its stint as the ruling government, PH abolished the GST in June 2018 and reinstated the SST. The latter has remained in place even after the PH government fell in March 2020.

As Malaysia recovers from the pandemic and seeks ways to increase federal revenue, there have been suggestions that the GST, as a broad-based consumption tax, may be a potentially useful fiscal tool.

Mr Ismail Sabri’s recent remarks on GST has sparked a debate in Malaysia.

Generally, business federations have been supportive of the idea. However, PH issued a statement on Jun 1, saying that reintroducing GST amid rising inflation would place a burden on the people.

“Reintroducing GST has the potential to increase the price of goods drastically. If added with supply chain problems and stagnant wages, the people will face terrible pressure,” it said.

“Many people started jumping when I said the government was ‘not ruling out the possibility’ (of reintroducing GST), but I also said we needed to study the negative and positive aspects of it first,” he was quoted as saying by Malaysian media.
The economic growth for this year is forecasted to be between 5.5 per cent to 6.5 per cent. Recent developments, including the Russia-Ukraine war and supply chain disruptions, may have a negative impact on economic recovery from COVID-19.

Last November, Finance Minister Tengku Zafrul Aziz tabled a RM332.1 billion budget for 2022, the country’s largest ever on record.

At that time, Mr Tengku Zafrul noted that the government expected revenue to drop by 1.22 per cent. He forecasted a 6 per cent deficit this year, or RM98.1 billion.

While most businesses are starting to recover from the economic disruption caused by lockdowns over the past two years, ordinary Malaysians are feeling the pinch of rising prices of key commodities such as chicken and fish.

Concurrently, there is the issue of the rising cost of living and diminished purchasing power, as the ringgit’s value slipped against the US dollar and other major currencies
Under the existing SST system, the Malaysian government collected an estimated revenue of RM 26.7 billion and RM27.9 billion in 2020 and 2021 respectively.

As compared to 2017 before the GST was abolished, the figure stood at RM44 billion.

Petroleum sales have accounted for a major portion of the federal revenue. But the country’s oil reserves have been dwindling, and Malaysia has in fact become a net oil importer since 2014.

Given the fiscal deficit and the need to boost federal revenue collection, there have been calls, particularly from United Malays National Organisation (UMNO) senior leaders including Najib, to consider reinstating the GST.

WHAT ARE THE KEY DIFFERENCES BETWEEN GST AND SST?

 

Under the current SST regime, there is a tax of between 5 per cent and 10 per cent on the sale of goods, while services attract a 6 per cent levy. CNA Explains: Why is Malaysia 

In comparison, the former GST regime covered a broader range of items and services with the rate set at 6 per cent.

Sunway University’s Professor of Economics Yeah Kim Leng explained that under the GST r

The GST, on the other hand, is a tax on the added value of a final product or service.

While the GST was in place, Mr Hafidzi recounted that businesses had faced delays in their tax reimbursements. This affected their cash flow, particularly for small and medium enterprises.

For businesses in the food and beverage industry, they are subject to a higher threshold of RM1.5 million.

 

ARE BUSINESSES RECEPTIVE TO THE IDEA?

 

Generally, the business groups have reacted positively.

Mr Nivas of KLSICCI opined that the previous GST system was an efficient and fair taxation system

“The GST is a more transparent and effective tax regime compared to the SST … GST provides a fairer tax structure and it eliminates cascading and compounding of taxes commonly found in the SST regime.”

POTENTIAL IMPLEMENTATION TIMEFRAME

Mr Hafidzi of Bower Group Asia said that Mr Ismail Sabri would need strong political support to reintroduce GST. Given Barisan Nasional’s (BN) slim parliamentary majority right now, this would not be possible, he said.

“They will be shouldering a higher share of the tax burden relative to their income or expenditure.” He added that this process will take time, including conducting a study and engaging the stakeholders

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