By Lawrence Yong
Malaysia may be able to properly implement a goods and services tax (GST) system only after 2014 as economists agreed that going slow was more realistic than a plan to expedite the new tax as some had expected.
Husni Hanadzlah
Malaysia’s Second Finance Minister Ahmad Husni Hanadzlah downplayed the GST last Thursday, saying that no GST was planned for the “short term.” The issue was initially raised by Performance Management & Delivery Unit (Pemandu) head Idris Jala, who drew some brickbats when he said at a post-GE13 forum that Malaysia would be able to rake in an additional income of up to RM27 billion if the proposed goods and services tax (GST) is implemented at 7%, similar to what’s been done in neighbouring Singapore.
In response, Bukit Mertajam MP Steven Sim wrote that the new tax would burden 90% of Malaysians. He pleaded instead for the government to focus its efforts on curbing corruption and financial leaks. DAP’s Sim went on to state that this resulted in a RM28 billion loss per year, as reported by the Auditor General in 2008.
Economists at bank-backed research houses said they had not expected the GST debate to kick into effect so soon, especially after a politically divisive 13th general election.
“My expectation was that it couldn’t be implemented so fast,” Manokaran Mottain, an economist at Alliance Research said. “They have to wait for the next budget to announce it and we are looking at 2014 at the earliest.”
Ahmad Husni echoed this view when he said that the government is still engaging with politicians, the private sector and the general public before arriving at a decision.
“We do not want to just see the GST from the point of government revenue but also the prosperity of the people,” he told reporters after opening the 19th Meeting of the World Savings Bank Institute (WSBI) Asia/Pacific Regional Group.
The new taxes, which have widespread implications for almost all businesses, would require ground support, economists said. The opposition Pakatan Rakyat was still protesting the results of the 13th General Election on May 5, which returned ruling coalition Barisan Nasional (BN) to power, althoughit received less than half of the total vote.
“We anticipate that the GST can be done properly only in 2015,” Kaladher Govindan, an economist from TA Securities said. “The government needs time to educate the people and think of what sort of rate is right.”
Economists were however positive on the GST’s impact on Malaysia’s fiscal management as it would help broaden revenue sources. Nearly 40% of the federal government’s budget now comes from repatriation of profits by Petronas’ who faces escalating costs in exploiting the country’s oil and gas reserves. Petronas also heavily subsidises the power sector through its monopoly of gas supplies.
Economists estimated that less than 10%, or 1 in 10 working Malaysian adults, now pay income tax. The top income tax rate is now 26%. Corporate tax rates are also being cut under the economic transformation programme (ETP) to fastrack the country to developed status in seven years. The government aims to secure US$444 billion in new investments which would create value-added businesses.
“The government is ready to implement GST at any time,” the ministry of Finance (MOF) website noted. In website, the government has provided 39 answers to frequently asked questions about the GST.
The MOF said that the proposed GST would be charged and collected on all taxable goods and services produced in the country including imports. However, businesses are allowed to claim for a refund of the input tax credit if it exceeds their output tax.
The MOF also also said that if GST is implemented, the government will provide ample time of between 18 to 24 months for businesses and industries to prepare themselves.
Observers said that the BN government may be hard-pressed to expedite the GST as its election promises included cash giveaways, cheaper cars, more affordable houses and hiring more police personnel. The Malaysian government has already been spending more than it collects in the last 15 years and the government’s debt is approaching the maximum allowed level of 55% of GDP.
The suitable or government prefered rate for the GST has not been made clear.
Idris said that GST could be as high as 7%, as he looked to Singapore as an example. This was above the previously mooted 4% level.
“The rumours of 7% is excessive. It is too much to be introduced, especially at this point,” Alliance’s Manokaran said. He said that he expected a 3%-4% GST to be more reasonable, with some kind of a rebate to help the poorer segment of society.
One of the major issues raised in the 13th GE was rising urban poverty. Malaysia’s household debts are among the highest in the region due to inflationary prices for necessities such as cars, education and houses.
The MOF has said that certain basic foodstuffs likes rice, sugar, flour, cooking oil, vegetables, fish and meat, eggs and essential services such as health and private education, public transportation, residential property and agricultural land may not be subjected to GST. Such an exemption is to ensure that the lower income group is not burdened.
You must be logged in to post a comment.