PETALING JAYA: Timing is key when it comes to bringing back the unpopular goods and services tax (GST).
While experts have said that the broad-based consumption tax is necessary to strengthen the government’s coffers and broaden the tax base, a rushed move to revive the GST could have damaging effects on the economy, particularly in current times where recovery remains fragile.
According to Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, 2022 and beyond would be the right timeline for the re-introduction the GST once the economy has recovered,
Speaking with StarBiz, he said any measures that would enhance government revenue is laudable especially after the country experienced a rating downgrade by Fitch Rating.
“Nonetheless, the communication to the public as well as the implementation of such a move is critical to ensure a total buy-in from the citizens.
“Equally important is the timing of the implementation that would need to be carefully planned so that once it goes live, there wouldn’t be any hiccups, ” added Mohd Afzanizam.
Bernama reported yesterday that the government is studying the feasibility of reviving the GST.
Deputy Finance Minister II Mohd Shahar Abdullah was quoted as saying the study would include impact on the economy, cost of living, the effect of taxes on the price of goods as well as the ability to address shadow economy activities.
The former Barisan Nasional government introduced the GST on April 1,2015 amid a mixed reaction from the public, at a rate of 6%.The indirect tax was removed after Pakatan Harapan took over the reins of government and it was replaced with another form of consumption tax, the sales and service tax (SST).However, the SST has been criticised by pundits as an inefficient tax mechanism and for contributing lower annual tax collection to the government’s coffers.
Concurring with Mohd Afzanizam, Socio-Economic Research Centre executive director Lee Heng Guie said it would be wise for the government to wait until 2022 to prepare for the re-implementation of GST.
“The new rate cannot be too low or too high. A rate of between 3% and 4% is acceptable for the start. The 4% GST rate is a revenue-neutral level, which means the total amount collected will equal the collection under the SST at current rate.
“But, the total amount to be collected under the GST would depend on the number of exemptions given and the revenue threshold set on businesses to be covered under the tax, ” he said.
Previously, only businesses with an annual turnover of RM500,000 were required to register for the GST.
In the event the GST is re-implemented, Lee said it is important for the government to rectify mistakes committed in the previous round.
“It is about how we improve based on the lessons learnt during the previous GST implementation. One example would be in terms of refunds.
“If the GST is revived, the government must ensure that tax refunds are made in time as promised and not delayed, ” he said.
Mohd Afzanizam also suggested for the GST to begin at a lower rate as compared to 6% previously, if it is re-implemented.
“We can gradually increase it over time, ” according to him.
On the implementation, he said the government needs to be cognisant of the potential side effects such as inflationary pressures.
Therefore, there must be a robust monitoring mechanism and consumers must be fully aware of their rights in the event of price manipulation or any form of discrimination that would put consumers at a disadvantage.
“Perhaps, awareness on consumer tribunals would need to be improved so consumers would know where to seek help if they feel mistreated by the businesses. Active consultation with businesses would need to be done so it will clear any confusion.
“I think the country has really learnt the lesson quite well and therefore, with past experience, the move can be executed in a timely manner, ” he said.
