GST: Previously scrapped due to politics, should be restored to expand govt revenue streams
SHAH ALAM – The Goods and Services Tax (GST) which was implemented in 2015 was unsuccessful due to political lobbying, not the economy, says Isham Jalil.
The newly appointed Umno Supreme Council member Isham Jalil said the GST which was introduced under then prime minister Datuk Seri Najib Razak did not perform well due to a group of wealthy businessmen who pushed for the abolition of GST through intense political lobbying after the last general election (GE14).
"Wealthy businessmen or tycoons tried to influence particular political parties since they did not want to pay more taxes.
"Political lobbying happens not only in Malaysia but it is happening worldwide," he said at a webinar co-organised by the Bait Al-Amanah think tank and Z Consultation Group.
The GST which was scrapped in 2018 by Pakatan Harapan government was then replaced with the Sales and Services Tax (SST), which Isham claimed had caused in loss of revenue of RM100 billion since its introduction.
He also said the government was on a tight budget to help Malaysians and provide subsidies amid commodity and food price volatility due to the GST cancellation.
"What happened was, the rate increased from six per cent GST to 10 per cent SST where the rate (almost) doubled, but the collection was only half from GST.
"Back then during GST, we collected RM40 to RM45 billion per year but after SST was introduced, we only manage to collect RM20 billion per year," he added.
He also said, "If we double the tax rate and collect only half and the price keep on rises, this will definitely make more people run away from tax."
Meanwhile, Institute for Democracy and Economic Affairs (IDEAS) Dr Juita Mohamad agreed with Isham, and said that GST was needed to expand the government revenue streams in a sustainable manner.
Dr Juita said that based on the numbers, GST collection proved its ability in providing higher results than the current SST.
"Looking at the data from 2011, approximately 55 per cent of government's total revenue comes from direct taxes, among them is from petroleum tax revenues where the trend somewhat declined from the fall in global oil prices in 2011.
"This decrease has to some extent been offset by the implementation of GST from 2015 to 2017," she said.
Juita also added when GST was introduced in 2015, it constituted about 14 per cent of the government's revenue and increased to 23 per cent in 2017 while the SST instituted only eight to fourteen per cent of the government's revenue.
She said statistically, it showed that GST was more comprehensive and it could cover more economic activities.
"In the long run, GST will create a sustainable and stable source of fiscal revenue for the government which can then be used to invest in the health, (and) education sectors.
"GST can be done but it has to be planned accordingly especially when the current economy like domestic and global is quite fragile," she said.
Commenting further, Bait Al-Amanah’s research director Benedict Weerasena said GST would collect more revenue than before should it be reintroduced.
"Based on research, if we bring back GST, the estimated tax implementation with six percent rate will allow us to collect RM47 to RM53 billion every year.
"Before GST was abolished, we only manage to collect RM44 billion," he said.
Benedict stressed that without GST, the possibilities of losing many sources of income in our country to support subsidies and development projects planned by the government were very high.
"I think we all understand that we need GST to come back but the question is when?" he asked in the webinar today.
Recently, Prime Minister Datuk Seri Ismail Sabri said GST was seen as capable of widening the country’s revenue base, and the government was not ruling out the possibility of reinstating it as an effective way to increase national income and help combat inflation and the rising cost of living.
It was reported that Pakatan Harapan (PH) was against the proposal to reintroduce GST, with the presidential council saying that such a move would be harmful to the public given the current situation of high inflation and rising cost of living, as well as the effects of the Covid-19 pandemic on household income.
Former director-general of the Royal Malaysian Customs Department Datuk Seri Subromaniam Tholasy had said that GST reintroduction to replace the current SST should be implemented in a targeted manner so it would not burden the lower-income group.
On the other hand, the Federation of Malaysian Consumers Association welcomed the reintroduction of GST, as the move would contribute to increasing the national income.
Prominent banker Tan Sri Nazir Razak was also reported as saying that he supported GST reintroduction if it was done the right way as it was necessary for the long-term to bring Malaysia forward.