The introduction of the Goods and Services Tax (GST) can be one of the most difficult reforms a government undertakes.
With an impact on the business and general communities, GST can really test the skills and resolve of policymakers and politicians alike. It is a reform that many countries have struggled with.
On the one hand, you have a country like New Zealand, which introduced GST in 1986. It has since been updated a number of times, and is an accepted cornerstone of the country’s tax mix and economic growth. On the other hand, Australia has struggled, with the latest effort to modernise the tax system ending recently with GST reform being ruled out.
And yet, holistic tax reform, based around the taxation of consumption, has the power to be transformational. As someone with a keen interest in promoting reform and the ongoing development of Malaysia’s economy, I watched with interest how the government and business community prepared for, implemented and operationalised GST.
From any vantage point, you would have to conclude that the process had been successful.
Yes, there were times when there were concerns about the pace at which many businesses were preparing for GST and the short period that the Royal Malaysian Customs had for implementation — and CPA Australia wrote about these in this newspaper.
However, the introduction came together when it was needed the most. With strong support from Customs, businesses have generally adapted well to the new rules and processes.
This is reflected in the revenue collections from GST, which are well ahead of forecasts. The government has advised that revenue collections have been in the order of RM50 billion since the introduction of GST, compared with the RM37 billion collected in 2014, without GST.
The result of this adjustment in the country’s tax mix has been to create something of a revenue buffer against the drop in oil-related revenue. It’s the sort of resilience required during economically volatile times.
Notwithstanding headwinds on the domestic and external fronts, the latest figures show that the economy expanded by five per cent last year, which was actually slightly ahead of the predicated growth rate of 4.9 per cent.
As expected, many businesses have mixed views on GST and its impact on their business. Change and transition can be a challenge, and the GST reporting and payment system does take some time to become a natural part of business operations.
However, as the results of our most recent survey of small businesses in Malaysia and across the Asia Pacific show, business confidence in Malaysia is strong. Nearly 70 per cent of respondents reported that they grew over the last 12 months, and even more significantly, 70 per cent said they would grow in the year ahead. That’s an increase of 10 percentage points from last year’s survey.
Experience tells us that with this level of optimism and confidence, with time, the teething issues that some businesses are experiencing will dissipate, and GST will largely become part of the ordinary day-to-day systems of business.
As with any tax, there will continue to be issues, but in the main, the government, particularly the Royal Malaysian Customs, and the business and general communities have participated in a successful implementation of an important economic reform that will serve Malaysia’s economy well into the future.
Alex Malley is chief executive of CPA