Improve GST rather than abolish, says think tank

IDEAS says supply constraints in trading could also be contributing to the higher cost of living.

Ali Salman says GST is important because the government had previously been heavily reliant on income from Petronas.

PETALING JAYA: The IDEAS policy analysis group has called for improvements to the Goods and Services Tax scheme instead of its abolition as Pakatan Harapan says it will carry out within 100 days of winning the next general election.

Ali Salman, acting head of the Institute for Democracy and Economic Affairs, said the institute’s analysis of the consumer price index, two years before the tax was introduced and three years after, had shown that the cost of living had been rising.

“But you cannot pinpoint the GST as the cause. There are other factors such as supply constraints. To pin the blame on GST is not being realistic,” he said at Pakatan Harapan’s Economic and Business Forum Hi-Tea here today.

Ali said GST was important to the federal government’s fiscal management. In the past the government had been heavily reliant on income from Petronas. When the oil price dropped, the income was reduced and this adversely affected the government.

Ali added that many essential items were zero-rated and thus not affected by GST.

The way forward was through improving GST rather than bringing back the sales and services tax (SST) that was in effect earlier.

However, former prime minister Dr Mahathir Mohamad, who was present at the forum, argued that the GST was “very bad” as it applied at every stage of the transactions along the supply chain.

Although businesses could claim rebates, this took too much time. As a result, businesses had to increase prices across the board, including those on items not subject to GST, in order to cover their costs. This ended up as a burden on the people.

He said in the past, the government had allowed duty-free imports of electronics and watches and people started setting up tax-free shops, which were popular among Malaysians and foreigners.

“This was a very lucrative business. People opened tax-free shops and made profits. The government taxed the profit. So people enjoyed cheap products, businesses got good profits, and the government got more revenue.

“This is the kind of tax we should have. Not the GST that affects everybody.”

The government was estimated to have earned RM42 billion in income from GST last year. -FMT