Economists Back Return of GST, Say It’s Easier for Businesses

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Two economists and a former minister have backed a think tank’s call for Putrajaya to reintroduce the abolished goods and services tax (GST) ahead of Budget 2020.

Carmelo Ferlito from the Institute for Democracy and Economic Affairs (IDEAS) and Ramon Navaratnam from the Asian Strategy and Leadership Institute (Asli) said the consumer tax is better than the sales and services tax (SST) which came into effect on Sept 1 last year.

“I think a growing number of economists and analysts realise abandoning the GST was not a good move and replacing it with the SST was probably not the best way to manage the vacuum left by the GST,” Ferlito told FMT.

He said the GST tax regime was easier for businesses to implement and for the government to administer.

GST also had a lower impact on prices as those along the supply chain could claim back a refund, he added.

“So, I believe bringing it back would be a good idea. This time, I suggest the government introduce a tiered GST of between 0% and 10% rather than a flat 6%,” he said, adding this was to reduce the burden on the lower-income groups.

Ferlito said basic goods and essentials can be zero-rated while items and services related to education can be set at 3%, the bulk of products and services at 6% and luxury items at 10%.

Navaratnam, who heads Asli’s Centre for Public Policy Studies, said it makes sense to bring back GST from an economic, financial and budgetary perspective.

“But it would be difficult to do so from a pragmatic and political point of view,” he said as the Pakatan Harapan-led government had only shifted to SST last year.

He proposed modifying SST to be more GST-like and rebranding it, with the trade-off being more goods and services consumed by the poor being tax-exempt.

Yesterday, the Malaysian Institute of Economic Research (MIER) urged Putrajaya to re-introduce the GST at a lower rate of 3%.

MIER chairman Kamal Salih said GST was fair and more superior than the SST when it came to revenue collection for the government.

Dr Mahathir Mohamad today said the suggestion could be considered “if that’s what the people want”.

Meanwhile, former deputy finance minister Ahmad Maslan welcomed the proposal, saying it could help the government reduce its reliance on oil revenue and foreign borrowings.

The Pontian MP said GST was effective in curbing the “shadow economy”, and in Malaysia’s case, this translated to over RM20 billion in revenue for the government.

“Shadow economy” refers to goods and services produced alongside those in the formal economy – that are paid for in cash and not declared for tax. It also includes illicit funds from corruption, illegal gambling, drugs and smuggling, among others.

Ahmad said if the GST is brought back at a rate of 3%, the government can still earn the same as the current revenue derived from SST.

“But it effectively stops the shadow economy and it is still more efficient and transparent than the SST. With GST, people know how much tax they’re paying.

“With SST, the tax is paid at the manufacturer level, but no one will absorb it. They would pass the cost down the supply chain and ultimately the consumer ends up paying more.”

Ahmad Maslan said foreign investors prefer GST as it is more transparent. – FMT