GST is back in the conversation. The hard part is winning trust

FEW policies carry as much political baggage in Malaysia as the Goods and Services Tax (GST). Yet Prime Minister Datuk Seri Anwar Ibrahim has put it back on the national agenda.

On Aug 18, Anwar, who is also Finance Minister said the government was prepared to study whether certain elements of GST could be incorporated into the existing Sales and Services Tax (SST), while making clear that SST would remain the basis of the current system.

He also rejected the idea of simply bringing back GST as a broad-based tax, warning that doing so would mean taxing people who currently do not pay tax.

That captures the government's central dilemma: Malaysia needs a tax system capable of raising more revenue efficiently, but it cannot afford reforms that deepen public anxiety over the cost of living.

Anwar's remarks are therefore less about resurrecting GST than acknowledging the limitations of SST.

GST was introduced in 2015 at six per cent and abolished after Pakatan Harapan came to power in 2018 following intense public opposition. SST was subsequently reinstated.

The political lesson from that episode is clear: a tax can be economically defensible and still fail politically if taxpayers do not believe the system is fair.

That is where the current debate becomes more important.

The issue is not simply the mechanics of consumption taxation, but who ultimately bears the burden. The question, therefore, should not be whether Malaysia wants GST or SST, but what kind of consumption-tax system the country actually needs.

SST is narrower, while GST's broader base and input-tax credit mechanism can make taxation more systematic and transparent. But efficiency alone does not make a good tax system. Equity, administration, compliance costs and the impact on businesses and consumers matter too.

And, perhaps most importantly in Malaysia today, so does public trust.

The government's own figures illustrate the complexity. Following the SST expansion effective July 1, 2025, the Finance Ministry said the number of exempted or zero-rated goods would total 1,826, compared with 607 zero-rated items under GST before it was abolished in 2018. The expanded service tax covered 70 per cent of services listed under the Malaysia Standard Industrial Classification (MSIC) codes, compared with 76 per cent under GST.

So this is not simply a choice between a "good" GST and a "bad" SST. Both systems have strengths and weaknesses.

The real opportunity is to ask whether Malaysia can design something better.

If GST features are being considered, the government should explain which ones, why they are needed and how they would improve the existing system. More importantly, it must spell out the safeguards for lower-income households and explain how those at the bottom of the income ladder will be protected if more people are eventually expected to contribute.

This is where the politics becomes unavoidable.

Malaysia is heading towards the 16th General Election and any discussion of GST will inevitably be viewed through a political lens, regardless of how economists frame it.

The government cannot expect Malaysians to separate tax reform from their memories of 2018, particularly when households remain sensitive to food prices, housing costs and everyday expenses.

Nor can Putrajaya simply argue that GST is more efficient and expect public acceptance.

If the government wants to reopen the debate, it needs to do so differently this time.

Not with slogans. Not with a binary GST-versus-SST argument. And certainly not by appearing to introduce a tax first and explain it later.

It needs to make the case openly: how much additional revenue is required, why the present system is insufficient, who will pay, who will be protected, how businesses will be affected and what mechanisms will prevent excessive price increases.

Most importantly, Malaysians need to believe that additional tax revenue will translate into better public services, stronger fiscal resilience and a fairer distribution of the burden.

That is the conversation Malaysia should be having.

The issue is no longer simply whether GST should return. It is whether Malaysia can build a consumption-tax system that is efficient enough to raise revenue, fair enough to protect vulnerable households, practical enough for businesses and credible enough for the public to trust.

Because without trust, even the most efficient tax system can become politically toxic.

And that may be the hardest lesson from GST's first run in Malaysia.