KUALA LUMPUR: Malaysia will need to look at the overall structure of its tax system in the long run if the country wants to expand significant capital during the pandemic.
Deloitte Malaysia indirect tax executive director Senthuran Elalingam said all options should be on the table and thoroughly evaluated, and the goods and services tax (GST) would form part of that discussion.
he also noted that the Economic Cooperation and Development (OECD) has recommended that a broader review of Malaysia's tax system is needed to address the fiscal imbalance caused by the pandemic.
"In the medium to longer-term, replacing the sales and service tax (SST) with the GST from a tax policy perspective makes sense," he said in a statement today.
Elalingam said there are significant challenges to widening a single-stage tax like the SST.
Recent attempts to widen the scope have resulted in a lot of unintended consequences such as multiple levels of tax being paid and confusion on scope, he said.
"Any decision to widen the SST would need very careful considerations.
"Reintroducing the GST would remove all current challenges faced with the SST and will give the government a lot more scope to widen the base.
"That being said, timing is critical, and it is important that businesses are given time to stabilise post-pandemic before needing to implement new tax systems," he said.
Previously, OECD has recommended the government to consider GST as part of its medium-term fiscal strategy.
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Nevertheless, the GST was repealed in 2018 amid the concern about its regressivity affecting the purchasing power of low-income households, and the former SST was reintroduced.
Considering the efficiency of tax collection and the need 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, OECD said.