Poorer countries than us have GST, says Muhyiddin

BY SYED JAYMAL ZAHIID

OCTOBER 25, 2013

UPDATED: OCTOBER 25, 2013 08:59 PM

The deputy prime minister also maintained that the 6 per cent
rate set for the GST was low. — Picture by Saw Siow Feng

KUALA LUMPUR, Oct 25 — Tan Sri Muhyiddin Yassin today countered criticism towards Putrajaya’s 2015 plan to roll out the contentious goods and services tax (GST) by pointing out that countries poorer than Malaysia already use the consumption tax system.

The deputy prime minister also maintained that the 6 per cent rate set for the GST was low, echoing Prime Minister Datuk Seri Najib Razak’s explanation when unveiling Budget 2014 that the ratio was still the region’s lowest.

“There are almost 160 countries that have the GST and this include poorer countries. Only Malaysia has not implemented it and I think it is time that we roll out this system.

“This is the right thing to do,” Muhyiddin told reporters after Prime Minister Datuk Seri Najib Razak tabled the Budget in Parliament here.

He noted that the implementation would help restore the market’s confidence in Putrajaya’s commitment to consolidate its fiscal position, a move that he said would reverse the recent negative rating on Malaysia’s sovereign credit by rating agency Fitch.

The deputy prime minister insisted that the GST will not burden the lower income group as the government will implement measures that will offset the expected rise in goods prices like slashing income tax and increasing cash handouts under the 1 Malaysia People’s Aid (BR1M).

“The effect on this group is neutral. Research has been done on its implementation and besides that, the one off RM300 cash handout to the lower income group will be among the initial measures taken to deal with the (inflation) problem when the GST is implemented.

Malaysia will finally implement the long-delayed GST at 6 per cent beginning April 2015 as Putrajaya seeks to tackle its chronic deficit.

The replacement to the current Sales and Services Tax comes amid public concerns that it will increase the cost of living through a hike in the inflation rate, especially after a fuel subsidy cut in September.

To offset the new tax, Najib also announced that personal income tax will be reduced by 1 to 3 percentage points, depending on the income bracket.

A one-off payment of RM300 under the 1 Malaysia People’s Aid (BR1M) will also be made following the implementation scheduled for April 1, 2015.

The opposition have criticised the move, calling the new tax system “regressive” as it will impact the poor and middle income group the most.

But Muhyiddin insisted that the GST was needed for long-term stability as investors’ confidence will return once it sees Putrajaya’s seriousness in tackling its critical deficit.

“It will strengthen our economy and reverse the rating and this will increase investors confidence which will have a beneficial and positive long term effect.

“The GST must be seen from a holistic context,” he said.

Malaysia runs a relatively high government debt of 53 per cent of its gross domestic product (GDP) ― just under the legal ceiling of 55 per cent ― and has one of Asia’s highest household debt levels, at over 80 per cent of GDP.

Putrajaya has stated that it aims to reduce its budget deficit-to-GDP ratio to 4 per cent this year and gradually to 3 per cent by 2015.

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