Time to stop the Groundhog Day GST debate

It would be terrible to reintroduce GST, and if it is in the BN manifesto the coalition will lose public support even if it gains the backing of the businesses that do not pay it.

Let’s be absolutely clear. When people say that the goods and services tax (GST) raises more money than the sales and service tax (SST) they are right, but the extra money it raises comes directly from your pocket, not a magic money tree.

Worse, it comes from the pockets of low-income groups who cannot afford to pay it. While most GST advocates argue that it is more efficient, in fact around the world GST is typically in double figures, with rates of 20-30% common in most countries. This is when it really hits low-income groups.

Companies like GST because they do not pay it, they reclaim it and pass on the final bill to consumers.

Politicians advocate GST to pander to pressure from businesses and because it raises more revenue. This higher revenue is not free money. It is raised at the expense of the rakyat who pay it.

GST raised more revenue than SST only because it was charged on around 76% of products and services compared with only 41% subject to SST. So of course it raised more money.

SST revenue is estimated to be around 51.6% lower than GST which is good and leaves more money in the pockets of micro, small and medium enterprises (MSMEs) and consumers and less to be wasted by the government.

We have to remember that the GST was implemented in 2015 mainly to finance escalating government deficits and debt and not because it is a better tax. It did not cut debt and deficit, it funded higher spending resulting in massive wastage, leakages and corruption.

It had a big impact on the general price level, thus raising the cost of living for everyone. It is a regressive tax and it hits poorer households more than richer households when low-income groups are already struggling with higher cost of living and stagnant wages. This is why it led to widespread public discontent.

There are high compliance costs especially for smaller firms which means it is regressive in business terms as well as for households.

Smaller businesses pay more compliance costs as a percentage of revenue than large businesses and the long wait for repayments severely squeezes their cash-flows. The backlog in GST repayments was RM30 billion over just three years of its implementation. This is RM30 billion of cash flows denied businesses, especially MSMEs, during that period.

The delays in providing tax refunds to businesses and the wasteful use of the additional revenues the tax generated strengthened the anti-GST sentiment.

Under the unity government SST has been very effective in raising tax revenues. In 2026 it is likely to reach around RM60 billion compared to an estimated RM53.4 billion this year.

In addition, the government has saved at least RM15.5 billion in subsidy rationalisation annually and RM15.5 billion in cutting corruption over two years. This means there is no urgency for tax changes when effective efficiency savings are prioritised.

The debate between GST and SST is a sterile argument based on tax theories of the 1970s. It is based on the false premise that there are only two forms of consumption tax and fails to consider new alternative taxes available in 21st century economies with high e-payment and e-commerce systems.

An e-payments tax (EPT) for example is a tiny tax on electronic payments including swipe-cards, QR payments, e-wallets and online payments.

A 1% EPT can raise RM28.8 billion without anyone really noticing. So this is a much better tax yield than either GST or SST at the same tax rate.

It is time to end the Groundhog Day debate on SST vs GST and look at alternatives fit-for-purpose in the new economic conditions. - FMT

The views expressed are those of the writer and do not necessarily reflect the views of  MMKtT.