Malaysia needs GST again

 Waiting for RM4,000 wages may sound compassionate, but is not the answer.

From Dave Ananth

The government says Malaysia should not consider bringing back the goods and services tax until median wages reach RM4,000.

It sounds compassionate. It is also the wrong way around.

Malaysia cannot fund better services through corporate income tax, petroleum revenue, and the few workers paying personal income tax.

Malaysia needs a broad-based consumption tax again. But it cannot simply revive the 2014 GST model and expect acceptance. First, the government must confront why GST became so deeply distrusted.

I was professionally involved during its original implementation. The economic case was stronger than the public explanation.

GST was the largest tax change in a generation, but many Malaysians never understood why it was necessary, how it worked or how poorer households would be protected. Some traders exploited the confusion; others blamed GST for every price increase.

Teething problems were inevitable. But they arrived as public confidence in government was deteriorating. That was fatal.

GST became a symbol of distrust

GST took effect on April 1, 2015, at 6%. Politically, it became evident that a government accused of waste and financial mismanagement was making ordinary Malaysians pay the bill.

Dr Mahathir Mohamad led Pakatan Harapan promising its abolition. The opposition could exploit GST because the government had failed to establish sufficient trust.

When people suspect public money is being mismanaged, even a technically sound tax becomes objectionable. Their question is no longer whether GST is efficient. It is: why should we pay more when the government has not shown us what it is doing with the money?

The controversy over RM19.4 billion in unpaid GST refunds deepened that distrust. The Public Accounts Committee found that the money had not been stolen or “lost”, but identified failures in managing the refund fund and complying with financial procedures.

Businesses entitled to refunds should never finance the government’s cash flow. Delayed refunds turn GST into a working-capital cost passed to consumers.

Its abolition was politically understandable, even if economically shortsighted.

SST is not an adequate substitute

Malaysia replaced GST with sales and service tax, then widened SST and increased service tax rates. That reveals the underlying truth: Malaysia still needs the revenue GST was intended to produce.

Unlike GST, SST has no mechanism for recovering tax incurred on business inputs. Tax can become embedded and cascade through supply chains, with consumers unable to see how much is hidden in the final price.

As SST expands, it increasingly depends on classifications, thresholds, exemptions and sector-specific rules. Malaysia is trying to reproduce GST’s breadth through a less transparent and less coherent system. A functioning GST is broader, more neutral, and avoids much of this cascading.

The RM4,000 condition: a political shield

The OECD’s 2026 Economic Survey found Malaysian tax revenue below 13% of GDP and federal debt around 65% of GDP. It recommended a broad-based consumption tax with targeted transfers protecting vulnerable households.

Economy minister Akmal Nasrullah Nasir recently said only about 15% of Malaysia’s workforce pays income tax.

If so few workers pay it, Malaysia cannot finance its future by repeatedly returning to the same narrow group. Consumption provides a broader and more stable base.

The minister says Malaysia must broaden tax revenue while resisting the principal broad-based tax available. He wants broader revenue without confronting a broad tax. That is not a fiscal strategy.

Wage figures make the RM4,000 condition even less convincing. Department of Statistics data show the median formal-sector wage was RM3,027 in March 2026, compared with RM3,000 in March 2025 – growth of less than 1%.

Even with sustained annual growth of 4%, it would take about seven years to reach RM4,000. At 3%, it would take about 10 years. That would be nominal RM4,000, worth considerably less after years of inflation. The threshold could then conveniently become RM4,500 or RM5,000.

Wages do not rise sustainably by announcement. They rise through productivity, which requires investment in skills, transport, healthcare, technology, and institutions.

The government says Malaysia must first achieve higher wages before securing the revenue needed to help build a higher-wage economy. Waiting for RM4,000 is not responsible caution. It is a politically convenient way of postponing a difficult decision.

Repair trust instead of postponing reform

Introducing GST without protecting lower-income households would be reckless.

GST is regressive when considered alone because poorer households consume a larger share of their income. Advocates should admit this. But the answer is to neutralise that effect, not postpone reform indefinitely.

Targeted cash assistance should begin before GST takes effect. The initial rate should be modest and fixed for a defined period. Genuine essentials should be protected without creating exemptions so wide that they destroy the tax base.

Legitimate refunds must be paid within a stipulated period, with performance published regularly. Small businesses need a realistic registration threshold, simple digital filing and implementation assistance.

E-invoicing and digital tax administration make implementation easier than in 2015. But technology cannot manufacture trust.

Those who campaigned against GST must acknowledge that abolition resolved a political grievance but not Malaysia’s need for stable revenue. The opposition should not weaponise it merely because political positions have reversed.

Malaysia needs GST because its ambitions have outgrown the revenue system expected to finance them. But Malaysians will not accept another lecture telling them GST is good for them. They require proof that the government has learned what went wrong.

The first GST failed politically because a major technical reform was introduced into a deficit of trust. The next GST must be a compact: citizens contribute broadly, vulnerable households are protected, businesses receive refunds promptly, and government accounts openly for every ringgit.

Once that compact is credible, waiting for an arbitrary wage figure is not economic policy. It is an excuse for doing nothing. - FMT

Dave Ananth is a former tax director with EY Malaysia.

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