Reactions to GST announcement in the 2014 Malaysian Budget

Here are some of the comments regarding the announcement of GST in Malaysia. 

GST targets a bigger group but poor hit most

-  say economists from the Socio-economic and Environment Research Institute (SERI).

The decision to finally introduce the Goods and Services Tax (GST) is a regressive move that would largely hurt poor and debt-ridden Malaysians.   The introduction of consumption tax of 6% effective April 1, 2015 would in fact do more harm than good in the long run.   The poor “tend to have lower savings as most of their expenditures are for necessities”.

By pushing forward with the GST, the government would reinforce investor confidence but burden the people in the long run.

The Government need to ensure that it can enforce the GST effectively.

- say  Institut Rakyat economist

The committee tasked to oversee the implementation of GST must have the teeth to enforce the GST on traders, manufacturers so as to curb inflation.

The GST would require an input and output of tax to be enforced at every level of the supply chain, and is a tedious and complex task requiring stricter enforcement

GST to be introduced in Malaysia

It's confirmed.  The Malaysian PM has just announced that GST will be implemented in Malaysia effective from April 1, 2015, at the rate of 6%.

In line with that, expenses related to purchase of accounting software and training in preparation for GST will be entitled to double deduction.

GST Implementation is a must

There are many parties who are urging the Malaysian Government of the day to announce the introduction of  GST in the coming 2014 budget to be held on October 25, 2013.

Arguments supportive of the GST:

1. Accounting firm PWC suggests that the GST rate to be imposed at 6%.  The Government can expect to rake in an annual revenue of around RM32 billion at the suggested 6% GST rate.  If the GST was to be imposed at 4% per cent, it would be 'revenue neutral' and there was no point in imposing it. (see report here)

The increase in revenue collection is to give the government some degree of flexibility in terms of fiscal management.  More importantly, it will not cause a further downgrade of the country's Fitch's rating.

 2. The Secretary-General of Treasury  says that  "GST implementation a must" .  There is an urgent need to tackle the country’s fiscal deficit  as Malaysia’s current account shrank to RM2.6 bil in the second quarter of 2013.   Full report here

The country's public debt level is so close to the statutory limit of 55 per cent of gross domestic product (GDP).   The country needs money to fuel the 6.5 per cent growth that is needed to become a rich nation by 2020.  

3. With the introduction of GST, it will mean  that the Country will be able to  generate a more stable source of income, while reducing reliance on direct taxes (Income tax) and petroleum revenues.

Just to recap, GST is a form of tax collection that is based on consumption.  It is supposed to be a  fairer tax system, as it will help the government collect their dues from those who have yet to declare and file their income tax returns. What the income tax does not capture, the GST will capture.  


4. What is wrong with the goods and services tax (GST) when more than three-quarters of the world's countries are implementing it? They can't be all wrong.   (Read more here )

Arguments against GST

There are also many parties who are opposing the introduction of GST.  The opposing parties said that now is not the time to introduce GST because "it will heavily burden the rakyat and take a toll on the rakyat"  (quote extracted from here).  There are parties that will try to stop GST from being passed in Parliament.

Also, the opposing argument is for the government to look into cost controls, instead of just focusing on broadening its income base by implementing the GST

"It is important that the efficiency and effectiveness of our government organisation are enhanced and improved ... only then do I think the deficit can be reduced."   Read more

So will it or will it not be announced in the coming 2014 budget?