Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on August 16, 2021 - August 22, 2021

Malaysia needs to bring back the Goods and Services Tax (GST) when the economy recovers from the impact of Covid-19, the Organisation for Economic Co-operation and Development said last Thursday (Aug 12). Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed agrees that policymakers should consider reimplementing the GST when the timing is right.

The rationale is clear. The government needs to expand its tax base to better fund social assistance programmes that will grow in importance as the population ages. The additional tax revenue from an expanded tax base would enhance the government’s fiscal space to deal with future crises. An expanded tax base is something that most economists and credit rating analysts agree with and want to see happen.

It is no secret that the largest hurdle to the reimplementation of GST is a fear of the political backlash that stemmed from the pain the people and businesses experienced due to poor execution when the GST was implemented at 6% between April 1, 2015 and June 1, 2018. The people’s unhappiness could have been avoided if there had been sufficient targeted cash aid from the government to ensure that those in the lower and lower-middle income brackets would not be affected by the GST.

Businesses, which had to invest time and money in systems to implement the tax, would also not have been unhappy if the GST rebates due to them had been processed and paid efficiently instead of putting them through a cash flow strain.

Singapore, which had to delay its planned GST rate hike from this year to between 2022 and 2025 due to Covid-19, said in February this year that a rate hike needs to happen sooner rather than later to fund rising expenditure, particularly healthcare needs. Its government did not fear talking about a GST hike amid the pandemic because money saved from past reserves was being spent on aid.

Malaysia too needs to have more revenue sources to better fund healthcare and cast a wider social safety net. The database on who needs aid should be much better post-Covid-19. The government needs to learn from past mistakes and make sure the rationale for GST is well-communicated and executed when the time is right.

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