Explain what it means to switch back to GST, govt urged

 

While it is good to revert to the goods and services tax, the government should take time to explain reasons for the switch first, says tax consultant Chow Chee Yen.

PETALING JAYA: The government should spend time to first explain why it is reintroducing the goods and services tax (GST) before implementing it, according to a tax consultant.

Chartered Tax Institute of Malaysia president Chow Chee Yen said the additional time would also enable businesses to prepare themselves for the change from the sales and service tax (SST). He recommends a lead time of 12 months to 18 months.

In any case, he said, it was unlikely that the GST would be included in the 2023 budget.

“The people and businesses need time to prepare for it,” Chow told FMT Business.

Chow Chee Yen.

He said that while the GST was a more efficient tax system, given that it promoted transparency and accountability, the rate should also be limited to 2% to 3%.

The GST was introduced in 2015 with a rate of 6% but it was replaced with the SST in 2018 by the Pakatan Harapan administration.

Chow said the SST should remain until the public was ready for a return to the GST, but the system needed to be improved by broadening its scope and preventing cascading taxes.

A cascading tax refers to a system that imposes sales taxes on an item at each successive stage in the supply chain for products and services consumed.

“On the other hand, the sales tax is imposed only on the manufacturer and the service tax only on the service provider,” Chow pointed out. “Many businesses do not fall within the scope of SST.”

He also noted that reducing income taxes may be mitigated by increasing the number of taxpayers. That is accomplished by increasing the compliance rate.

During the movement control order, he said, the government increased disposable income temporarily for employees who needed funds by allowing them to reduce their Employees Provident Fund contributions for a limited period.

“Apart from that, increasing disposable income does not automatically result in a positive impact on economic health. It can also cause prices of necessities to rise, leading to inflation,” he said.

Chow said it was also not feasible to introduce the global minimum tax of 15% on certain multinationals now given that tax professionals and the Inland Revenue Board (LHDN) would need time to understand the “very complex” system.

He said delaying the implementation would not have an impact on Malaysia’s competitiveness given that other countries were also looking to do the same.

“In the UK, the implementation has already been postponed to December 2023 while in Hong Kong, it has been deferred to 2024,” he pointed out.

“We should implement it no later than other countries to protect Malaysia’s right to impose the tax,” he added.

In August, the LHDN explained that the global minimum tax was essential to ensure that businesses paid their taxes fairly to the host countries. “This will also prevent leakages,” its CEO Nizom Sairi said.

On other tax-related schemes, Chow said the government should remove the five-year limitation on exemption tax for foreign-sourced income, particularly on dividend incomes and resident individuals.

He said this would encourage more foreign investors to put their money in Malaysia rather than look for investment opportunities elsewhere.

Chow also expressed hope that the government would extend the economic stimulus packages such as Penjana and Prihatin until 2025 as many businesses still required assistance.

Budget 2023 will be tabled in the Dewan Rakyat on Friday, three weeks ahead of the originally scheduled date of Oct 28. - FMT