Monday, October 14, 2013

GST unlikely to reduce budget deficit in near term


Posted on 14 October 2013 - 05:37am
Liew Jia Teng

KUALA LUMPUR (Oct 14, 2013): The full impact of the goods and services tax (GST) will not be immediate and is unlikely to reduce Federal budget deficit in the near-term on the back of continued spending of the 1Malaysia People's Aid (BR1M) cash aid initiative for the low-income group, said Taxand Malaysia Sdn Bhd chairman Dr Veerinderjeet Singh.

A budget deficit means that the government spends more money than it receives.

Veerinderjeet estimates that an initial revenue-neutral rate of 4% for GST will generate RM18 billion in tax revenue, which is about the same amount of tax revenue (RM16 billion to RM17 billion) collected from the existing sales tax and service tax of 7%.

"We don't see the country's tax revenue surging overnight as the full impact of the GST is only expected to start in 2015. But eventually, as the rate of GST increases, it should bring in tax revenue faster," he told reporters after presenting a paper on "GST: The Good, The Bad and The Ugly" at a seminar organised by the Malaysian Economic Association here on Friday.

He believes that a GST rate of 7% would "wipe out" the national budget deficit within a year.

Veerinderjeet is of the view that personal and corporate income tax should not be reduced immediately following the implementation of the GST, due to uncertainty in the global and local economies, as well as adaptation of local businesses to the new tax structure.

"We are now in a period of uncertainty, and this is not the right time to reduce income tax, even with the GST in place. The tax system is not mature, you can't be sure if you can collect the revenue (from GST) efficiently," he said.

"So it is better to wait and clear the other issues first, such as reviewing the incentives structures for the future," he added.

Veerinderjeet stressed that the government needs to look at the long term benefits to the country, and not to reduce the income tax on an ad hoc basis just because the people want it.

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