GST Implementation Must Not Be Postponed As It Benefits Economy & Stops Serial Tax Dodgers

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KUALA LUMPUR, Jan 14 – Malaysia’s economic fundamentals, which continue to be strong, will be further reinforced with the introduction of the Goods and Services Tax (GST) as it will make tax collection more efficient and thereafter generate more revenue and boost growth.

This is crucial given the weakening ringgit and the decline in global crude oil prices as the government is expected to rake in a revenue of about RM23 billion in the first nine months after the GST is implemented on April 1 this year. Malaysia’s GST at six per cent, one of the lowest in the world, is also likely to bring in RM32 billion in revenue for 2016 and offset any fall in revenue from petroleum.

As such, calls by certain quarters to postpone the GST do not make economic sense for it is crucial to boost finances at a time when the oil-producing countries are adversely affected by low oil prices. The GST is also timely as its transparency would bring to book those who evade paying taxes or under-declare their earnings and in the process will plug leakages in the economy by significantly reducing the size of the shadow economy.

Shadow economy, or underground economy, is estimated to account for about 30 per cent of the country’s gross domestic product. Postponing the GST would only benefit the unscrupulous as well as serial tax evaders. This brings to question whether the opposition parties, which are calling for the GST to be postponed, are genuinely fighting for the lower-income groups, or in reality protecting businesses that want to evade taxes.

In Malaysia, lower-income households spend most of their earnings on goods and services which are either zero-rated or exempted. Hence, GST in Malaysia is naturally progressive. Therefore, the GST, as a more transparent and efficient tax collection system, must be implemented according to schedule on April 1 and there is no need to entertain opposition calls for it to be postponed.

Besides GST, supporting the nation’s economic fundamentals is Malaysia’s ability to reduce the budget deficit given the continued inflow of investments. Analysts say that long-term investors, some more than 100 years, and continue to stay put in the country, is evident that Malaysia continues to be a stable investment destination.

Based on the approvals for the first seven months of 2014 alone, Malaysian Investment Development Authority (MIDA) has surpassed the total approved investments for the whole of 2013. MIDA had approved investments amounting to RM53.2 billion for the seven months period, compared with RM52.1 billion in 2013.

While there is understandably concern now over the weakening ringgit against the US dollar and the steep fall in world crude oil prices, there is no need to be alarmed as Malaysia has gone through financial crises before. Malaysia has been tested during the Asian financial crisis 17 years ago which saw the ringgit attacked by unscrupulous currency traders forcing it to hit a low of RM5.20 against the greenback at one point in 1998.

Thereafter, it introduced capital controls, including pegging the ringgit at RM3.80 to a dollar, which though seen as controversial back then, later emerged as an economic life-saver. The Malaysian currency is currently hovering at RM3.6 compared with RM2.93 in August 2011.

Another positive note for Malaysia is that policymakers have been gradually undertaking subsidy reforms which would save billions of ringgit and this, together with the GST, would provide a boost to revenue. Lower crude oil prices have helped the government’s subsidy reform, saving about RM2 billion a month for fuel subsidy for the past two months.

With crude oil prices below US$70 per barrel, the government managed to set petrol price at the pump for RON95 at RM1.91 and RON97 at RM2.11 for December. Subsidy reform in Malaysia was initiated in July 2010 via a reduction in subsidies for fuel and sugar.

Further cuts in subsidies for these and other products are being planned over a three- to five-year period to strengthen government finances by reducing deficit level. Malaysia’s deficit stood at seven per cent in 2009 and the country aims for three per cent for this year.

Malaysia has also diversified its sources of revenue whereby oil revenue made up only about 30 per cent of total revenue of about RM130 billion. The implementation of the new tax regime, GST, would further lessen dependency on oil revenue, which is why postponing it would prevent Malaysia from joining the 130 or so countries which have gained immensely from GST.

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