GST needed to boost tax revenue, say economists

 

Under the present SST regime, Putrajaya collected revenue of RM26.7 billion in 2020 and RM27.9 billion in 2021, in contrast to RM44 billion in 2017 through the GST. (Bernama pic)

PETALING JAYA: Economists are calling for the reintroduction of the goods and services tax (GST), describing it as necessary to give government coffers a significant boost.

Yeah Kim Leng of Sunway University said a 2% increase in the sales and service tax (SST) introduced by Budget 2024 would only nudge the tax-to-gross GDP ratio marginally higher.

“Malaysia’s current historical low tax revenue can be raised considerably by increasing indirect taxes, especially through a broad-based value-added tax that is consumption rather than income-based,” he told FMT.

Yeah said a consumption-based tax such as the GST would make revenue collection more straightforward, as compared with income tax which may be affected by underreporting and tax evasion.

“Although consumption tax is regressive as it affects the low-income groups more adversely, the negative effects can be addressed through income transfer and zero-rating or exempting essential goods.”

In June last year, the International Monetary Fund said Malaysia urgently needed to develop a new medium-term fiscal strategy as its tax revenue was among the lowest in the region.

Putrajaya, however, resisted requests by industry players and experts to reintroduce the GST in its 2024 budget on grounds that the time was not right to do so.

In November, then deputy finance minister Steven Sim said the government would consider “other taxes” only after exhausting all avenues available to bolster the country’s coffers.

However, Yeah said Malaysia urgently needed to “rebuild fiscal space” given heightened global uncertainties.

“This is not only to increase the country’s resilience to shocks, but also to accelerate its structural transformation through higher public investment and social spending to uplift the low-income and vulnerable groups.”

Yugendran Sivakumaran of think tank Bait Al-Amanah also supports calls to revive the GST.

He said the SST rate increase of 2% would only bring in additional revenue of about RM3 billion for Putrajaya.

“In the grand scheme of things, this increase would be minuscule. For 2023, the expected SST revenue is around RM34.2 billion,” he said, adding that the additional RM3 billion would only raise revenue by 8.7%.

On the other hand, Yugendran said GST at the rate of 6% could double the country’s revenue due to its broader tax base.

The GST was introduced at 6% in 2015 under then prime minister Najib Razak. It was abolished by the former Pakatan Harapan government three years later and replaced with the SST at the same rate.

When unveiling the 2024 budget last year, Prime Minister Anwar Ibrahim announced that the SST rate would be increased to 8%, with food, beverages and telecommunications exempted from the hike.

Under the SST system, Putrajaya collected an estimated revenue of RM26.7 billion in 2020, and RM27.9 billion in 2021.

In comparison, the government collected RM44 billion from the GST in 2017. - FMT