Widen SST scope before bringing back GST, says expert

 

Firdaos Rosli, chief economist for Malaysian Rating Corporation Bhd has called for GST to be reintroduced within the next 10 years. (Bernama pic)

PETALING JAYA: An expert in taxation has recommended that the goods and services tax (GST) be re-introduced only after the scope of the sales and services tax (SST) has been widened.

SST currently covers 38% of goods and services. GST, when it was in force, covered 68%.

Veerinderjeet Singh, a former president of the Chartered Tax Institute of Malaysia, said the government would, in theory, be able to collect more revenue if it were to widen SST’s scope.

GST should be reinstated “down the road”, he added.

Veerinderjeet Singh.

“Right now, apart from widening the scope, we should ensure we are efficient when it comes to enforcement and that the compliance level is high,” he told FMT.

He was commenting on a call by Firdaos Rosli, chief economist for Malaysian Rating Corporation Bhd, for GST to be reintroduced within the next 10 years.

Firdaos said he was proposing the re-introduction because Malaysia was becoming an ageing nation. With more and more people retiring and no direct taxation on retirees, he added, tax revenue would decline.

But Veerinderjeet said the re-introduction could be done in three years’ time with SST converted to GST, adding that the latter would be a “logical evolution” of the former.

“Timing is important” in implementing GST, he said.

He said it was a mistake to cancel GST, but he conceded that it was “not the answer to everything”.

The pertinent issue, he said, was how the country managed its tax systems to increase government revenue.

“It is about efficiency of the tax, whether we can widen the scope, increase the rate and enforce it. If we do that with the existing taxation system, it can help bring in additional revenue.”

Wong Koi Nyen.

He said GST proponents were mistaken to think it brought in huge revenues. While GST’s built-in check and balances allowed authorities to manage the tax better in terms of auditing and tracking, he added, “it did not mean it brought in revenue just like that.”

Economist Wong Koi Nyen of Sunway University agreed with Firdaos, saying Malaysia was still a labour-intensive economy.

Wong said a declining working-age population would result in lower labour productivity and income and subsequently have a negative effect on direct tax revenue.

But he also agreed with Veerinderjeet that it was not urgent to re-introduce GST.

“It takes decades to see a 50% shrinkage in the working-age population, provided the fertility rate also falls drastically over time,” he said.

He also said GST should be re-introduced in phases, starting with a 3% rate.

“This is the soft landing approach, which is intended to reduce the hiccups that shadow the GST like inflation and structural adjustments.” - FMT