Malaysia's GST: A vital tax reform that warrants support

MALAYSIAN Prime Minister Najib Razak has not only evinced confidence that the Goods and Services Tax (GST) would be implemented on schedule from April next year, he has also asserted that this is a fundamental reform of the tax system that could not be put off any longer. But, even as he again explained, in his Budget speech recently, why the country needs the new tax system, he unveiled further exemptions for mid-grade petrol, diesel as well as LPG, from the 6 per cent tax. There will also be exemptions for bread, noodles, coffee, tea and certain medications, on top of all the exemptions granted previously.

So, while the impetus for the new system is rightly to end budget deficits going back to the East Asian Financial crisis in 1997/98 and to cut back on the mountain of public debt built up to just below 55 per cent of GDP, there seems to be some nagging worry that the tax may trigger inflation beyond the anticipated 5 per cent. More importantly, the growing list of exemptions seems to be an attempt to sweeten the deal for the politically significant urban voters. In most GST jurisdictions, the aim is to keep the list of exemptions to an absolute minimum. Clearly in Malaysia's case, the plan seems to be to get the system going first, before making it comprehensive.

Even in its reduced state, the business community seems indifferent to the project. For instance, about only 7,000 companies with annual turnover exceeding RM500,000 (S$194,500) - slightly more than 2 per cent of the 300,000 or so companies to be included under the GST scheme) have registered with the tax collection agency. The deadline for registration is Dec 31 and unless the pace of registration suddenly picks up in the next two months, there will be difficulty in getting the system going by the second quarter of next year.