THE possible reintroduction of the Goods and Services Tax (GST) could be used as a stabilisation policy when the country’s economy faces strong headwinds, experts said.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said any effort, including the possible reversion of the current Sales and Services Tax (SST) to GST in future, could cushion the downtrend impact.
He added that as the global economy faced a slowdown, an efficient tax system was needed to ensure the local economy could face the pressure.
REDUCING DEPENDENCY ON OIL REVENUE
“It would be good in terms of increasing the government’s revenue, as relying on oil revenue is risky as oil prices are constantly volatile,” he told Bernama.
At this juncture, Afzanizam said Petronas should increase its oil reserves both domestically and overseas, hence a tax system that did not rely on oil revenue to cover the shortfall was much needed.
However, he emphasised the need to provide information in a transparent manner to avoid misconception on the implementation of the new economic policy.
Tax experts said with current oil prices hovering around US$55 to US$65 per barrel, the 2020 Budget should be drafted based on that price range.
Last year, benchmark Brent Crude had peaked at US$84 per barrel before sliding to US$53 in January.
VIEW OF NEW TAX FROM
BUSINESS PERSPECTIVE
YYC Holdings Sdn Bhd chief executive officer Yap Shin Siang said it was undeniable that the GST was a more efficient system for businesses.
“This is because under the Sales and Service Tax, it becomes a cost to businesses. But under GST, it is claimable as input tax.
“We also suggest several improvements in areas such as simplifying the tax codes and reporting system, as well as speeding up the refund process,” she said.
Both Afzanizam and Yap agreed that the GST should start at a lower rate than the previous six per cent, possibly at three per cent.
Prime Minister Tun Dr Mahathir Mohamad was reported as saying that the government might consider reviving the GST.
“If that is what the people want, we will review it, if it is better than SST,” he said, adding that it might be too late to reinstate the tax in the 2020 Budget, which will be tabled this month.
The GST was first introduced in April 2015 at six per cent before being abolished and replaced with the SST on Sept 1 last year.
IMPACT ON EQUITY MARKET
From the equity perspective, analysts agreed that although reintroducing the GST might cause uncertainty, this would be temporary as the GST was known as a more effective tax measure that had been implemented in various countries.
An analyst said talk about the reimplementation of GST had been around for a while now, since the oil price had not gone above US$80 per barrel, the price on which the previous budget was based.
“The government has to tap into Petronas and Khazanah’s coffers, which has left an impact on their credit ratings, which in turn has had a direct impact on equities held by them,” Yap said.
She added that a stronger tax base would not only boost the local economy, but could also strengthen the equity market as 70 per cent of the local bourse was government-linked.
“A stable tax collection will lead to a stronger fiscal position, hence reducing the dependency on cash reserves held by sovereign funds and Petronas. It would be a short-term pain but for a long-term gain,” she said.
STRENGTHENING EXPORTS
Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai said the federation supported the GST due to its transparency and effectiveness.
He said the prices of Malaysian exports would become competitive on the global stage as the GST was not imposed on exported goods and services, and taxes incurred on imports could be recovered along the supply chain.
“This strengthens our export industry and helps the country progress even further.
“Given the weak external environment and amid current global tensions, we believe priority should be given to strengthening the economy and restoring favourable business conditions. Therefore, we note this will be the opportune time to reintroduce the GST system.
“The FMM shares the government’s concern on the need to expedite reduction in the prices of goods and services as the manufacturing sector is also a consumer.”
Soh said it would not be difficult for manufacturers to switch back to the automated model as GST compliance systems were already in place.
To create a consumer- and business-friendly GST, the FMM proposed that the rate be reduced from six per cent to three to boost businesses, investments and employment opportunities, while minimising delay in its six to eight-month refund period.