Government still evaluating reintroduction of Goods and Services Tax to replace Sales and Services Tax
Malaysia is again facing calls to reintroduce a Goods and Services Tax to replace its turnover-based Sales and Services Taxes. GST was first introduced in April 2015 to replace SST, but was withdrawn in July 2018 and SST reimplemented. Any GST reintroduction could happen by 2023.
Malaysian Prime Minister, Ismail Sabri Yaakob, reportedly said last week that the government was keen on reimposing GST as it has lost RM20 billion (US$5 billion) in tax revenues since its withdrawal.
Last year, the government confirmed “A study being carried out also covers the impact on the economy, cost of living, cost of goods, as well as ability to address the shadow economy (or black market),”
This follows recommendation from the Organisation for Economic Cooperation and Development (OECD) that GST would broaden and stabilise the tax base, and help the government cope with the economic shock of the COVID-19 crisis. It would also limit the cascading – compound taxation – effect on businesses of the current irrecoverable SST.
The country’s ongoing political uncertainty – the Prime Minister has just resigned following a lost vote of confidence – is however the main block to any change of tax policy. The country has faced a long-term outflow for foreign money as the COVID-19 pandemic and political indecision have delayed economic reforms.
172 countries have a VAT or GST regime.
How Malaysia fell out of love with GST the first time (2015 to 2018)
SST applies to less than 100,000 companies, but GST covered almost half a million traders, giving a more reliable and larger tax base. However, final sale-only SST was felt to be simpler to administer than mult-stage GST. GST also failed to stop the rising government debt problem – a promise for its introduction. As a result, the new GST become unpopular and was blamed for rising prices following its 2015 introduction. This led to its withdrawal in June 2018 following election commitments by Pakatan Harapan.