THE Goods and Services Tax (GST) is one of the strategies to advance and develop Malaysia's economy.
To cling on to the obsolete Sales and Services Tax (SST) would do a disservice to the economy in the medium and long terms.
Introducing GST in Malaysia in 2015 was the right decision, as the economy was then on a solid footing for the capital and people economy. Economic growth was at six per cent in 2014, average income from 2007 to 2016 grew 90 per cent, and income inequality in 2016 was at a historically low level.
In 2017, the World Bank reported that Malaysia was on track to become a high-income nation, perhaps as early as 2020.
Today, four years after GST was abolished, we see not only that prices did not go down, but it has caused the government to lose around RM20 billion of revenue yearly.
The comeback of an inefficient tax system in SST made things worse in the economy, especially in terms of suspending structural reform and eroding investor's confidence in the economy, among other things.
Thus, when Prime Minster Datuk Seri Ismail Sabri Yaakob said in an interview with Japan's Nikkei Asia that the government was considering bringing back GST, in principle, it is indeed the right move.
I believe that this time, we are well prepared, as the experience of implementing GST from 2015 to 2018 can guide a more efficient rollout of the tax.
GST, in essence, is about efficiency and transparency. It is not about increasing or decreasing price levels. As we can see today, prices did not go down without GST. On the contrary, prices have gone up instead.
The real economy is so complex that you cannot single out one factor for causing a spike in prices, what more blaming a tax system.
GST is also not about the need for the government to increase its revenue to be spent on other matters, especially in helping the people. The notion that governments have to first tax the people before they can spend is a reverse logic.
In actuality, government spending itself creates money. The whole process must start with the government, with its spending or investing before people can pay taxes.
The fundamental issues here are twofold:
FIRST, is about understanding the real reasons for taxation in the economy; and,
SECOND, is about the understanding of public finance, which has been wrongly compared with that of a household.
Economic doctrines, like the Modern Monetary Theory, which are quite popular, especially in times of crisis and recovery, can illuminate these issues further.
In the midst of World War 2, British economist John Maynard Keynes once said: "Anything we can actually do we can afford."
And, in his important book, How To Pay For The War, Keynes noted: "Coming up with the money is the easy part. The real challenge lies in managing your available resources — labour, equipment, technology, natural resources, and so on — so that inflation does not accelerate."
In other words, the real question here is to agree on what we want to do and to figure out how best to do it. Keynes was right to argue that the real limit to public spending is inflation.
That is why the productive capacity of the economy must be expanded as well as taking cognisance of the importance of the long-term public investment initiatives to manage a possible spike in inflation.
We have done a lot of experiments in economic policy in the past two years of battling the economic challenges due to Covid-19. And we need to experiment more to reset the economy post-pandemic.
We need fresh ideas to build back a stronger and better economy. Reintroducing the GST is one of the crucial building blocks in the grand scheme of things.
The writer is an associate professor at the School of Economics, Finance and Banking, Universiti Utara Malaysia