The Government could reevaluate the Goods and Services Tax (GST) and reflect on how the consumption tax could be implemented better, considering all the possible advantages of the GST over other tax regimes will benefit the government, businesses and the people, said MIDF Amanah Investment Bank Bhd (MIDF).
In its Thematic Report released today, the investment bank said communication on the GST implementation is pivotal as it will involve the people and the Government should provide more clarifications by highlighting the possible impact in the short term and its strategies to alleviate them.
“GST reimbursement, which was an issue in the past, must be managed efficiently as any delay is unfavourable to business cash flows where the cost of doing business could be affected,” it said.
Besides that, some adjustments could be made after carrying out a cost-benefit analysis such as on the taxable threshold and GST rates, it added.
The investment bank said there have been talks on the reinstatement of the GST recently amid COVID-19-induced crises which could raise the Government's ability to overcome the economic downturn with existing revenues scheme and without relying on additional national debt.
While GST continued to spread across the world and becoming a major source of revenue for governments, currently, Malaysia along with Myanmar and Brunei, are countries under the ASEAN bloc that do not implement GST.
MIDF said the collection from GST that was implemented in Malaysia on April 1, 2015, contributed RM27 billion to the Government’s fiscal revenue in 2015.
“With a standard rate of six per cent, some taxable supplies were zero-rated such as foodstuff, treated water, exported goods and services, and others.
"The implementation was timely as the collection from GST rose further to RM41.2 billion in 2016, more than offset the continued decline of RM3.1 billion in petroleum income," it said.
“Based on the full-year implementation, GST contributed cumulatively RM85.5 billion in 2016 and 2017. The total cumulative revenue from petroleum-related income was only at RM10.9 billion in the same two-year period.”
The annual GST collection on average contributed RM42.7 billion per year to the total government’s income in 2016-2017 or nearly 20% of annual revenue.
In contrast, the combined collection of Sales and Services Tax (SST) accounted for a smaller share or on average contributed 7.6% of the Government’s revenue in 2005-2014.
MIDF said the suspension of GST coupled with tax holiday had pushed consumer sentiment up to its optimistic level but it took a hit after the SST 2.0 implementation on Sept 1, 2018, falling below 100 points and has been maintaining below the 100-point threshold level until now.
It said consumer sentiment dipped further to a record low of 51.1 points in the first quarter of 2020 (Q1 2020) due to COVID-19 pandemic which has put most of the economic activities on hold, and pushed unemployment rate higher and hit a record high of 5.3% in May 2020.
“Reinstatement of GST has the possibility to deteriorate consumer sentiment that has gradually improved since the trough in Q1 2020 if it was not conveyed clearly to the public,” it said.
On inflation, MIDF said the rate of inflation averaged at 2.3% three years before GST and not significantly different than 2.7% average recorded for three years after GST.
However, it said considering the possibility of a spike in price level if GST were to be reintroduced, the relevant authority needed to keep tabs on price movement after the imposition.
The investment bank also said that among significant attributes of GST is that it could minimise the tax cascading effect which is more prevalent under SST.
“While GST could eliminate the cascading tax effect, it will also remove inflationary prices as a result of it,” said MIDF.
Therefore, given that the rates are the same, consumers would pay less under GST compared to SST as they save payment on hidden tax.
At the same time, it said the government could avoid any loss in tax not being collected as the collection system is more comprehensive.
“Despite the sensitivity and controversy with the implementation of GST in the past, we could at least conclude that the positive impacts had helped to improve the government’s fiscal position,” it added.