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04 Jun 2022

KUALA LUMPUR: The government should study the reason why the implementation of the Goods and Services Tax (GST) had failed before it considers reintroducing the tax mechanism.

Experts believe the government should adopt a more diplomatic approach and ensure the move was supported by the people and business community to avoid
repeating the mistakes of the Barisan Nasional administration, which had introduced the tax in 2015.

Associate Professor Aimi Zulhazmi Abdul Rashid, an economic analyst at Universiti Kuala Lumpur’s Business School, said the negativity around the GST in the past was not entirely about the introduction of the tax mechanism.

“People and businesses understand the government needs more avenues to increase revenue to boost the nation’s development.

“The GST is a consumption tax. This means the more you spend, the more tax you pay, which makes the T20 (Top 20 per cent) segment, who usually spends more, the segment that pays more GST.

“However, the GST rate fixed by the previous administration was a bit high.”

He said issues arising from the GST collection mechanism, penalties and reimbursement might have cost the BN administration the 14th General Election.

“It should start with a lower rate of either two or three per cent to allow the people to adjust.”

He said the government should also take into consideration factors such as the rising Consumer Price Index, global economic pressure from rising inflation, even in developed countries, as well as the weakening ringgit, which compounds the situation and multiplies the inflationary impact.

“It is imperative that the government take a consultative approach instead of putting stakeholders under pressure this time.

“In addition, the government should build a high level of trust with the public on the money collected from the GST.

“They should be clear and transparent about how the tax collected will go back to the public.

“A high level of transparency in this matter will augur well for the government’s objective of building a consultative relationship with the people and businesses.”

Prime Minister Datuk Seri Ismail Sabri Yaakob, in an interview with Nikkei recently, said the government was “keen on bringing back the GST”.

He said he was aware of the unpopularity of the GST, but the government had limited options to replenish the federal coffers.

His statement elicited mixed reactions, with the Pakatan Harapan opposition front rejecting the tax’s reintroduction outright.

Manufacturers said a return of the GST would be welcome, provided the rate did not burden the people.

Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai said the federation believed the GST was a more transparent and effective tax regime than the Sales and Services Tax (SST).

“Based on a survey by FMM on the reintroduction of the GST in May 2020, 499 companies which responded strongly supported the replacement of the SST 2.0 with the GST.

“The GST provides a fairer tax structure and eliminates cascading and compounding of taxes that commonly happens under the SST.”

Consumers groups held similar views, saying a fair GST rate was all the more important now given the economic hardship that consumers were facing.

Malaysia Muslim Consumers Association (PPIM) lead activist Datuk Nadzim Johan proposed that the government fix a zero rate first before gradually increasing it.

“This is to give time to businesses and the people to adjust.

“Reintroducing the tax at a high rate at a time when prices of goods are surging will not only burden the people financially, but also mentally.”

He said PPIM suggested improving the implementation of the tax mechanism, such as having the government agency tasked with implementing it be more accommodating to businesses.

“The GST implementation drew flak from businesses in the past because the government agency in charge had failed to provide the necessary assistance. The agency should guide businesses on how the GST will be implemented.”

Article by: New Straits Times