Malaysian Finance Minister Lim Guan Eng - Channel NewsAsia

Possible reintroduction of GST: Respect mandate given by Malaysians in last GE, PH presidential council will decide, says Finance Minister Lim Guan Eng

The Malaysian government needs to “respect the mandate” given by Malaysians in the last General Election (GE) unless there is “incontrovertible evidence” that the people want the Goods and Services Tax (GST) to be reinstated, said the country’s Finance Minister Lim Guan Eng.

Lim told reporters today (4 Oct) after the Ministry of Finance’s monthly assembly that it was evident that the people opposed the six per cent GST in the last GE. The Pakatan Harapan government had thus abolished the tax according to its election manifesto.

“Unless there is incontrovertible evidence that this (wanting GST back) is the will of the people, I think we have to respect the mandate given by the people of Malaysia in the last general election,” he said.

Lim added that inflation will rise should the GST be reimplemented at its original rate of six per cent.

“Abolishing GST has its impact. We have one of the lowest inflations in the world at 1.5% last month and we expect not to exceed this for the whole year,” he said.

The Pakatan Harapan presidential council, however, will eventually make a decision on whether the tax will be reimplemented, added the Finance Minister.

Bernama reported Malaysian Prime Minister Mahathir Mohamad as saying on Thu (3 Oct) that while it is too late to incorporate the tax into the 2020 Budget, which is to be tabled this month, the government will still consider doing so in the future at a lower rate in a bid to supplement government coffers.

“If that is what the people want, we will review it, if it is better than SST,” he said.

The Malaysian Institute of Economic Research suggested the government to reintroduce the GST at a lower rate of three per cent, Bernama reported.

Bank Islam Malaysia Bhd chief economist Afzanizam Abdul Rashid told Bernama that the possible reimplementation of the GST “would be good in terms of increasing the government’s revenue, as relying on oil revenue is risky as oil prices are constantly in a volatile situation”.

An analyst who was not named told Bernama that a stronger tax base “would not only boost the local economy, but could also strengthen the equity market as 70 per cent of the local bourse is government-linked”.

“A stable tax collection will lead to a stronger fiscal position, hence reducing the dependency on the cash reserves held by sovereign funds and Petronas. It would be a short-term pain but for a long-term gain,” she said.

Tax consultant and chairman of Axcelasia Inc. Veerinderjeet Singh however told The Edge Financial Daily that the government should seek to improve the efficiency of the current Sales and Services Tax (SST), or even include some of the more useful elements from the GST into the SST to boost the latter tax.

“One reason the SST revenue is lower than what was generated by the GST is that the scope of items covered by the SST is much lower than what was covered by the GST.

“If we can enhance and widen the scope and tax base of the SST and enforce it well as well, as tweak it into ensuring that cascading of prices is curtailed, then we should see an increase in tax revenue,” said Veerinderjeet.

Affin Hwang Investment Bank Bhd chief economist Alan Tan told The Edge Financial Daily: “[T]he current government’s revenue collection is substantial, [so] even without the implementation of the GST, the government is still on track to achieve the fiscal deficit of 3.4% this year and 3.2% next year”.

The GST was first introduced by the Malaysian Parliament in Apr 2015 under former premier Najib Razak. However, following the change of government in May last year, the tax was replaced with the SST in Sep last year.