KUALA LUMPUR: The government may need to consider re-introducing the Goods and Services Tax (GST) as part of its medium-term fiscal strategy, said Economic Cooperation and Development (OECD).
According to OECD's third economic survey on Malaysia, the government needed to strengthen its tax compliance and efficiency of tax collection, while securing the transparency of its enforcement.
It said the introduction of GST in 2015 helped shore up the federal government revenue considerably.
"Nevertheless, the GST was repealed in 2018 amid the concern about its regressivity affecting the purchasing power of low-income households, and the former Sales and Service Tax was reintroduced (also 6.0 per cent for the service tax but on a narrow list of products).
"Considering the efficiency of tax collection and the needs to raise revenue, the government could consider reintroducing the GST in the medium term, while enhancing overall social protection, including through social transfers targeted at low-income and vulnerable households," it said.
As Malaysia positions itself for the next phase of its development, the 2021 economic survey has also suggested steps that the country needs to take, in order to transition successfully to a high-income country, and to sustain equitable growth beyond the Covid-19 pandemic.
Minister in the Prime Minister's Department (Economy) Datuk Seri Mustapa Mohamed said the OECD recommendation, at an appropriate time, was something policymakers should consider.
Mustapa said the government needed to be mindful of regional competition, thus reform was very important in this precedent time.
"Now, the timing is not appropriate to implement another tax reform. But the government has started to look at some reform in the tax system, as we look at the fact that the tax to GDP ratio is lower in Malaysia than other countries.
"We have a narrow revenue base in Malaysia, so tax is important for finance development," he told the media at a virtual press conference of the survey today.
He also said the issue on tax reform had been addressed by the Finance Ministry and that a number of reform measures had been introduced in the 12th Malaysia Plan.
"So there are lots of ideas, GST is one of them and corporate tax is another. The other one is also on improving the tax collection mission. It is not just the rate of taxation, but it is also the ability to collect the taxes.
"We have seen lots of improvement in terms of tax collection. At appropriate time, some of this proposal will be implemented, but surely now it is not a good time," he added.