Some, like tax expert Veerinderjeet Singh, are not in favour of reviving the GST. Instead, he told FMT Business, steps should be taken to make its replacement, the SST, more efficient.
On the other hand, retired chartered accountant Appadu Rao Santhariah pointed out that replacing the GST had significantly depleted the government coffers.
A more efficient tax regime has never been more urgent now that Malaysians have to contend with a crippling RM1.2 trillion national debt.
Added to that, more money is needed to pay the salaries of an already bloated civil service. Patience is wearing thin.
Prime Minister Anwar Ibrahim’s iteration of Budget 2023, tabled in February, contained several measures to raise revenue, such as new taxes on luxury goods and excise duties on vapes and e-cigarettes.
Next year, the capital gains tax will be imposed on the sale of non-listed company shares.
These measures are meant to raise revenue but, in reality, they are just pennies to the dollar.
But will the reintroduction of the GST make a significant difference?
Retain the SST
Veerinderjeet feels that the GST should only be brought back when the economy is doing well.
“It is not advisable now given that we are still recovering from the fallout of the Covid-19 pandemic and inflation is still a major concern,” he said.
However, he acknowledged that there are shortcomings in the SST that need to be rectified.
For instance, only 38% of all goods and services are covered under the SST compared with 68% under the GST. As a result, revenue from SST amounted to only about RM24 billion a year compared with RM44 billion under GST.
Veerinderjeet, who is also the chairman of business advisory Tricor Malaysia, said that reimposing the GST at 3% as some had proposed would yield about the same amount in revenue as the SST does now. “The GST only brought in RM44 billion in revenue when the rate was fixed at 6%,” he said.
The GST, a broad-based tax, was introduced in Malaysia on April 1, 2015 to replace the previous iteration of the SST.
Veerinderjeet said that under the SST, the tax is imposed only at the manufacturer’s level. Given that prices at that level are lower, it follows that revenue from the SST will be lower than if it was based on the retail price.
He said the 6% SST rate, if imposed on the end consumer rather than at the manufacturer level would yield the same returns in taxes as a 6% GST.
Tax collected not well spent
An equally pressing problem is the perception of how the money is spent. Veerinderjeet said the government would have to deal with the widespread impression that it lacks prudence in its spending.
This, he said, had led to a trust deficit between the people and the government.
He said the auditor-general’s revelations of wastage and poor planning in its annual reports only made matters worse.
“This is something the current government is aware of but has yet to clearly communicate its narrative on how the tax revenue is being utilised. This is a role for all ministries,” he said.
“There has to be greater accountability and it would be good for the ministries to provide a regular report card on its spending and on its achievements.”
More money needed
Appadu Rao said that since the GST was abolished in 2018, there has been a shortfall of about RM250 billion in government revenue.
“This money could have gone a long way towards paring down our spiralling debt,” he told FMT Business.
He said attributing price increases to the GST would be misguided.
“In most cases, those price increases are caused by supply and demand forces and by expansionary monetary policies implemented to stimulate growth,” he said.
“In addition, price increases also arise due to opportunistic wholesalers and retailers, which then fuels inflationary concerns.”
Appadu Rao claimed that the Pakatan Harapan government’s decision to abolish the GST in 2018 was politically motivated.
“It was just fulfilling an election promise and therefore not based on sound economic principles,” he said.