Experts: Scrapping GST ‘economically nonsensical’

Experts have branded Pakatan Harapan’s plan to abolish the goods and services tax (GST) as “economically nonsensical”, and questioned the feasibility of doing so.

Past midnight yesterday, newly-appointed Harapan chairperson Dr Mahathir Mohamad announced the idea as part of the opposition coalition's to-do list within 100 days of taking power.

Academician Firdaos Rosli questioned its feasibility.

“It is nonsensical. Economically nonsensical.

“If (Harapan) were to assume federal power and abolish the GST, it will be short of about RM40 billion worth of revenue to spend, which will affect its ability to govern. Not a good political strategy after all,” said Firdaos, who is director of Economics, Trade and Regional Integration at the Institute of Strategic and International Studies Malaysia (Isis).

The move could potentially hurt Malaysian businesses, rather than alleviate their burden, Firdaos claimed.

“There is no guarantee that prices will be cheaper with the abolishment of GST.

“In fact, in the case of Malaysia, removing the GST will hurt businesses that have already fully incorporated the tax system into their supply chain. We are already in the second full year of implementing (the tax).

“Does Harapan want businesses to take on higher risks by abolishing the GST?" he asked.

Firdaos (photo) listed the merits of the GST.

“We are living in an era where there is no better tax system, apart from GST, that can be used to provide a revenue buffer during an economic crisis.

“GST revenue collection remains steady during an economic crisis, but not direct taxes. We have seen this in many countries, including our own in the last two years or so,” he added.

His comments echo those made in May by Prime Minister Najib Abdul Razak, who said the GST was necessary to cushion the shortfall in national revenue from the drop in oil prices.

Budget strains

Meanwhile, Asian Strategy and Leadership Institute director Ramon Navaratnam was concerned that completely abolishing the GST would burden the budget.

“How are they (Pakatan Harapan) going to preserve the integrity of the budget?

“A complete withdrawal (of the GST) will cause budget strains as revenue will go down and the budget will be deprived. If you don't substitute it or replenish it with another tax, you're going to bear a loss, the deficit will grow.

“The current deficit is 3.1 percent of the gross domestic product (GDP); the deficit will get larger and it will not be sustainable.

“It is not feasible,” he said.

A former Transport Ministry secretary-general, Ramon (photo) urged Pakatan Harapan to provide more than an election promise.

“It’s not a bad idea but they must provide it with a proper alternative. You can't cut tax and do nothing about it. How do we finance the deficit?

“Does Harapan have alternative tax plans? What are the details?

“Do we borrow more? Do we raise the income tax? Corporate tax? Do we cut expenditure but where can you cut? Already there have been many cuts,” he said.

Wide base

Universiti Sains Malaysia (USM) economics professor Suresh Narayanan was more optimistic about Harapan’s proposition.

“It may be feasible if they are able to plug leakages someplace else.

“But they can’t abolish GST outright, with nothing to replace it. That will not work,” he said.

Suresh questioned if a Harapan-led government would revert to the sales and services tax (SST), which the GST replaced.

“Even if we go back to the SST, they need to make up the difference (as revenue from SST was less than GST).

“The GST has a very wide base and no one can escape it, which makes it an effective generator of revenue,” Suresh added.

The GST was implemented at six percent on April 1, 2015, with exceptions on fresh food items and selected essential items such as medication.

The opposition has made abolishing GST one of its key clarion calls, holding rallies to protest it.

On Jan 15 this year, Mahathir, as Bersatu chairperson, unveiled the party’s manifesto and announced plans to abolish GST in stages, eventually replacing it with a sales tax.- Mkini