Sunday, October 6th, 2019
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PETALING JAYA: A potential reintroduction of the previously scrapped goods and services tax (GST) could help in narrowing the budget deficit going forward, but it will fall on the government to prove that the system will be implemented properly.
Sunway University’s Professor of Economics Dr Yeah Kim Leng said that while the implementation would likely not take place in the immediate future, the government would have to be prepared to face the potential political backlash from the move.
“Before the general election, most economists were in favour of retaining the GST, but we had also recommended lowering the rate to about 3-4%. Now, however, that is water under the bridge, so the government should look at how to strengthen the sales and service tax (SST).
“They should also do a thorough review and address the past weaknesses of the GST system, and present it to the public to garner acceptance, given that one of the key issues in the past election was the removal of the GST,” he told SunBiz.
As for addressing the shortfall in revenue, Yeah said it could easily be met by the current SST regime. However if over the medium term, the government could show the benefits of returning to GST, then it could be useful in addressing the issue.
“I think the public will be more accepting of a broad-based system if the government shows it can raise taxes and spend efficiently and strengthen public finance administration. Once the government has proved itself, then we can look at widening the revenues,” he said.
The budget deficit for 2020 is estimated to be 3.2% of gross domestic product (GDP), a slight improvement from an estimated 3.4% of GDP in 2019, according to a report by the Socio-Economic Research Centre.
William Capital Plt chief investment officer William Ng also said the GST would technically help the government get more revenue, as it is a broad-based tax and therefore almost everyone would be subject to it.
“Objectively speaking, having the GST would mean no leakages and the government would not have losses on tax collection. However, it would really depend on who is managing the scheme and what tax rate is employed.
“I think 6% was the ideal rate, but perhaps it could start at 4% and then gradually increase so that people will not be impacted as greatly,” he said.
The government expects to collect RM22 billion in revenue from the SST this year. As of June 30, it had collected RM13.3 billion, based on data from Bank Negara Malaysia. In contrast, the GST collected was RM20.24 billion from January to May 31, 2018.
To recap, Prime Minister Tun Dr Mahathir Mohamad was reported as saying at an event last week that the government would look at the reintroduction of the GST if the people want it back.
However, last Friday, Finance Minister Lim Guan Eng said even if the government got incontrovertible evidence from the people, the decision must be made by the Pakatan Harapan Presidential Council.
“Not me alone to decide. Until that is made, we have to respect the mandate and will of the people when they voted for PH, which one of our promises was to abolish GST,” he was quoted as saying.
Lim said abolishing GST had its impact in managing inflation and cost of living with Malaysia enjoying one of the lowest inflation rate in the world at 1.5%.
On Tuesday, the Malaysian Institute of Economic Research suggested in its Budget 2020 wish list that the GST be brought back, saying it was more effective and fairer than the SST.
The GST of 6% was implemented in 2015 under the previous administration, but was scrapped last year following Pakatan Harapan’s victory in the 14th general election.
Separately, Yeah said one of the key issues of note in the upcoming Budget announcement would be the govern-ment’s spending on the low-income group.
“The government should focus more skills upgrading and giving them more entrepreneurial and other income genera-ting opportunities. Those programmes will be important because addressing the cost of living is an immediate term concern, but in the longer term, you need to raise the income level.”
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