Malaysia’s upcoming GST not a catastrophe

Reading Time: 3 minutes

GST MYThe Malaysian prime minister  Najib Razak’s widely expected and inevitable announcement to introduce a Good and Service Tax (GST) of six per cent by April 2015 has been met with discontent by the population, controversial analysis among economic experts and harsh criticism from the opposition.

However, let’s look at the facts. The Malaysian budget needs new income sources, otherwise it would be increasingly hard if not impossible to rein in the ballooning debt which cannot be in the interest of the citizens.

The GST brings a fundamental change from the present single-stage sales tax and service tax levied at only one stage of the supply chain. From April 2015, all goods and services are subject to GST unless specifically exempted, as are essential staples and public transport, for example.

Yes, life will become more expensive in Malaysia after the GST will have been launched – and together with it some subsidies removed. Counting in the inflation, citizens will feel it in their wallets.

However, Malaysia is not alone in carrying this burden. The relatively wealthy country for Southeast Asian standards can cope with a GST. Looking around, it becomes clear that Malaysia has always been more like an island of bliss in sales tax terms.

The new GST rate will be comparable to Singapore’s and Thailand’s seven per cent VAT and will still be lower than Vietnam’s, Cambodia’s, Laos’ and Indonesia’s 10 per cent, the Philippines’ 12 per cent  and Myanmar’s highly complex commercial tax that ranges from zero to 200 per cent depending on the goods. Ok, Brunei has no sales tax at all but it can afford it.

If Malaysia really achieves high-income status by 2020 as per its ambitious plans, it will also have to compare itself with high-income nations with regards to tax. Wealthy European nations have a sales tax rate between 15 and 27 per cent with only a few exemptions. Among developing regions, in Latin America, Africa and Central Asia most of the countries have value added tax (VAT) rates between 12 to 20 per cent.

The only nations or regions that can do without are special economic regions such as Hong Kong, Macau or Gibraltar, oil-rich Gulf nations and tax havens in the Caribbean. In this list, Malaysia has long been an outsider.

Malaysia’s opposition leader Anwar Ibrahim said that the GST would be hurtful to the poor and middle-income group as it reduces their purchasing power and thus widens the income gap.

This might be the case, but can be probably avoided if the proceeds from the GST flow back into a stronger social benefit system like it happens in Europe. All Malaysia needs are proper tax collection mechanisms and a thoughtful redistribution system like it is the case in countries with a highly developed social system. In fact, this could be the next challenge after Malaysia starts collecting the new tax.

This comment is part of Inside Investor’s bi-weekly column series in Sarawak’s leading newspaper Borneo Post and is published every second Sunday

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Reading Time: 3 minutes

The Malaysian prime minister  Najib Razak’s widely expected and inevitable announcement to introduce a Good and Service Tax (GST) of six per cent by April 2015 has been met with discontent by the population, controversial analysis among economic experts and harsh criticism from the opposition.

Reading Time: 3 minutes

GST MYThe Malaysian prime minister  Najib Razak’s widely expected and inevitable announcement to introduce a Good and Service Tax (GST) of six per cent by April 2015 has been met with discontent by the population, controversial analysis among economic experts and harsh criticism from the opposition.

However, let’s look at the facts. The Malaysian budget needs new income sources, otherwise it would be increasingly hard if not impossible to rein in the ballooning debt which cannot be in the interest of the citizens.

The GST brings a fundamental change from the present single-stage sales tax and service tax levied at only one stage of the supply chain. From April 2015, all goods and services are subject to GST unless specifically exempted, as are essential staples and public transport, for example.

Yes, life will become more expensive in Malaysia after the GST will have been launched – and together with it some subsidies removed. Counting in the inflation, citizens will feel it in their wallets.

However, Malaysia is not alone in carrying this burden. The relatively wealthy country for Southeast Asian standards can cope with a GST. Looking around, it becomes clear that Malaysia has always been more like an island of bliss in sales tax terms.

The new GST rate will be comparable to Singapore’s and Thailand’s seven per cent VAT and will still be lower than Vietnam’s, Cambodia’s, Laos’ and Indonesia’s 10 per cent, the Philippines’ 12 per cent  and Myanmar’s highly complex commercial tax that ranges from zero to 200 per cent depending on the goods. Ok, Brunei has no sales tax at all but it can afford it.

If Malaysia really achieves high-income status by 2020 as per its ambitious plans, it will also have to compare itself with high-income nations with regards to tax. Wealthy European nations have a sales tax rate between 15 and 27 per cent with only a few exemptions. Among developing regions, in Latin America, Africa and Central Asia most of the countries have value added tax (VAT) rates between 12 to 20 per cent.

The only nations or regions that can do without are special economic regions such as Hong Kong, Macau or Gibraltar, oil-rich Gulf nations and tax havens in the Caribbean. In this list, Malaysia has long been an outsider.

Malaysia’s opposition leader Anwar Ibrahim said that the GST would be hurtful to the poor and middle-income group as it reduces their purchasing power and thus widens the income gap.

This might be the case, but can be probably avoided if the proceeds from the GST flow back into a stronger social benefit system like it happens in Europe. All Malaysia needs are proper tax collection mechanisms and a thoughtful redistribution system like it is the case in countries with a highly developed social system. In fact, this could be the next challenge after Malaysia starts collecting the new tax.

This comment is part of Inside Investor’s bi-weekly column series in Sarawak’s leading newspaper Borneo Post and is published every second Sunday

Borneo Post logo

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