The topic of the re-introduction of the goods and service tax (GST) has resurfaced since Prime Minister Datuk Ismail Sabri announced that it was studying the possibility of re-introducing the tax.
He clarified yesterday that the government had not announced that the government would reinstate GST soon but would look into the possibility
GST, replaced the sales and service tax (SST) in April 2015 but was then scrapped in favour of SST in September 2018 when the Pakatan Harapan government took over the reins.
The prospects of re-introducing the GST have been mulled recently and drawn different reactions from some quarters.
While we are convinced that the GST is a tax system that is holistically beneficial to all, the timing of its implementation is of paramount importance considering that Malaysia and the world are besieged with the problem of inflation.
The implementation of the GST should be part of fiscal reforms and while the success of its implementation can be seen in different jurisdictions, it is necessary that some tweaking would be necessary if it is to be re-introduced.
One of the arguments that are often advanced for the implementation of GST in Malaysia is that it would be able to rake in more revenues than the SST a tune of RM44 billion compared to SST which brings in only RM22 billion.
It should be borne in mind that the difference in government revenue is because the SST covers only 38% of goods while the GST covers about 70% of goods and services
The compelling reason to implement GST again on the strength it brings in more revenue does not hold water considering that SST could be extended to include a wider range of goods and the government might be able to rake in higher revenue than the present.
Notwithstanding the GST structure is a holistic tax structure that ensures that it is an equitable system considering that the manufacturers, wholesalers, and retailers can claim the input tax from the government and it is only the consumers who eventually pay the tax.
In the case of the SST, the manufacturers would pay tax, but the others in the production chain do not pay tax but they will pass it down in the chain through higher prices being borne by the wholesaler, retailer, and finally the consumer.
It must be understood that at present only a small portion of the population pays tax approximately 10% of the population and this is not likely to be tenable in the future, with a small population base supporting a large one and thus the government needs to look out for an alternative source of income, one that would be fair and equitable to all.
Malaysia’s dependence on oil revenues whose prices fluctuate by vagaries of the world economy and the instability surrounding it cannot be a reliable source of revenue added to the fact that it is a depleting source of wealth.
As we move, another concern is that export revenues are likely to decline with tepid economic conditions in international markets coupled with declining import duties due to trade liberalisation.
At a time when the government is looking for a stable source of revenue, there is a compelling narrative to implement the GST which provides a stable source of income that is less susceptible to economic downturns due to the consumption nature of the tax.
This would become more imperative as many government projects are in the pipeline and there are not in any way being hampered by the lack of government revenues.
Still, there are lingering concerns. One notable issue is inflation. If the GST is implemented at any time on, it tends to be inflationary in the short-term and is likely to exacerbate the already inflationary pressures mounting on the economy.
The next consideration would be the rate of the GST should be set around 4% to 5% which although might not rake in the anticipated RM44 billion when it was first implemented, it would nevertheless be more than the present RM22 billion that is being raked in through the SST.
Among the concerns expressed by all, if the past is helpful for us in the future, the government can make timely refunds and delayed refunds would frustrate the process of implementation of the GST as many would inflate this to the price of the goods that would eventually have to be borne by the consumers.
Secondly, it should ensure that there is sound enforcement from enforcement officers to ensure that there is no excessive increase in prices and that the existing prices are per the standard price of goods and services.
Clarity on the goods that are to be zero-rated must be conveyed to both retailers and consumers. There are a large number of goods that would be exempt from the GST. It includes essential foodstuff, water and electricity, government services and public transport, health, education, highway, and toll to name a few.
The government must also ensure that there is no excessive profiteering on the part of the retailers and it is paramount that all players in the distribution channel keep records to ensure the smooth implementation of the system.
There are legislations such as the Anti-Profiteering Act that are in place that would deter retailers from charging excessively on goods. The government also needs to ally fears as it is already implemented in 140 countries.
–BusinessToday Speak
