Tuesday, August 13, 2013

GST in the spotlight again in Malaysia

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KUALA LUMPUR, May 21 : With the general election out of the way and Prime Minister Datuk Seri  Najib Tun  Razak mandate renewed, the spotlight is back on the Goods and Services Tax, an important economic reform which previous administrations talked about but hesitated to push through.
The GST, which would widen the country’s revenue base and reduce its dependency on revenue from oil and commodities, was tabled in 2009. But it was repeatedly delayed for fear a new tax would turn voters off the Barisan Nasional coalition in the election.
Now that the general election is over,  Minister in Prime Ministers Department Datuk Idris Jala, has hinted the GST is back on the table.
“It must be implemented as soon as Malaysians are ready to accept the mechanism,” he said last Friday, adding that GST at 7 per cent would bring in revenue of up to RM27 billion (S$11.2 billion) a year.
Currently, only 10 per cent of the country’s 12 million workforce pay income tax. Malaysia has a population of 28 million.
Economists, who see the GST as crucial to Malaysia’s economic reform, said it will be a test of Najib’s seriousness in pushing for change, especially since he has recently promised voters higher cash handouts in the future. “If these election promises are not accompanied by fiscal reforms such as the GST, it will be harder for the government to balance out its financial constraints in the long term,” Lee Heng Guie, chief economist of CIMB Investment Bank, told The Straits Times.
The GST will be closely watched, as it could also foreshadow how the government approaches policymaking in the next few years. The government has promised to cut subsidies and narrow its budget deficit, now running for almost 15 years.
At previous government briefings, Lee said, economists were told the GST rate would be between 4 and 5 per cent at initial implementation and would slowly rise to 7 per cent in the long run.
Singapore has a GST of 7 per cent, the same rate as Thailand’s value-added tax, while Australia has a GST of 10 per cent.
Malaysia’s opposition has said the GST would burden the working class by taxing all consumption, though the government has said essential items such as rice and cooking oil may be exempted.
GST critics said it is regressive as those who earn less would effectively use a larger portion of their income to pay for increased prices of goods and services. But Idris has said the government is committed in reducing corporate and personal tax rates to help cope with the new tax regime.
Maryann Tan, 36, a Web content developer, said the GST is inevitable as the country develops, but questioned if the new revenue would be spent wisely. “I’ll adjust my spending to cope with the GST,” she said, such as buying fewer imported goods. “My problem is, I don’t trust the government in spending the money.”
Economists expect Najib to announce a timeline for implementation when Parliament starts in one or two months, or in the Budget proposal this year.
“It is already widely expected to be implemented soon as preparations to educate companies and tax experts were already under way,” RAM Holdingschief economist Yeah Kim Leng told The Straits Times. “There is no reason why it should be delayed again.” – Singapore ST

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