Reintroduction of a modified GST maybe prudent to solve a number of fiscal issues

Murray Hunter


Reintroduction of a modified GST maybe prudent to solve a number of fiscal issues


Oct 14, 2024





Pakatan Harapan made a massive mistake when they repealed the GST upon coming to office in 2018. Pakatan Harapan could have made the GST much more equitable, and turned the regressive tax into a mechanism to redistribute income.

Moving onto 2024, public debt stands around RM 1.5 trillion and is growing. Debt service costs amounted to 12.6% or RM 49.8 billion in the 2024 budget. The government is under great pressure to lower the budget deficit, which was at a record level of nearly RM 100 billion. More spending has already been committed to with the 10% pay rise, for the civil service. With a global recession on the horizon, government revenue could be strained, if there is any downturn.

The government faces a number of problems going into the next budget period:

· Real wages are not increasing,

· Inflation (rising prices on food and staples) is eating into the financial wellbeing of the B40,

· Subsidies are costing the government RM 50 billion or 13.4% of budget spending in 2024,

· The federal government may loss a large percentage of revenue from Borneo’s oil & gas, and

· The gap in incomes between the T20, M40, and B40 is widening faster than ever.

The reimposition of the GST in a modified form may solve some of the problems above. In the 2024 budget, indirect taxes (SST) were estimated at RM 58.6 billion or 14.9% of budget receipts. One of the major issues with a GST is that it is a regressive tax, i.e., the burden of tax decreases as the income of the person rises. Thus, wealthier people pay less tax as a percentage of their incomes, on the basket of staples.

This is a very good argument for rejecting the GST (something I believed in for many years). However, if a a basket of staple living items, including produce, poultry, meat, and other basic living items were exempt, the B40 would escape a major portion of the GST.

This allows for a higher GST rate, which can act as a de-facto luxury tax. The rich buy items according to the different lifestyle they pursue, relative to the B40. If the GST was introduced with a decrease in come tax for the B40 and increase of tax for the T20, Malaysia would have a much more equitable tax system that may slow down the widening of the incomes gap.

This could allow for a higher GST rate of say 10% (It was 6% when introduced in 2016), which when levelled on consumption, would bring in around RM 100 billion per annum. This is much more than the RM 58.6 billion collected in SST in 2024.

Certainly, the re-introduction of the GST in the manner described about, and the altering of income tax rates would meet great resistance among Malaysia’s elites, who have enjoyed low taxes in Malaysia for decades. This could even allow for more subsidies to be removed.

Its highly doubtful that such a radical move would be made to protect the B40, and make the T20 pay more tax. Instead, the government will most likely play around with luxury, capital gains, and even inheritance taxes that good accountants will be able to escape.

Expect in this 2025 budget, spending to remain high, with a budget deficit in the same order as last year, around RM 100 billion. The finance minister will use the good GDP growth figure to justify his sums.

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kt comments:

Pakatan and pro Pakatan media lied through their teeth on GST, examples being kerang (blood cockles which as fresh seafood was not GST-ed) became out-of-reach of the poor Malay women because of some ridiculous GST figures; likewise with fresh kembong; then Azmin Ali and his "fresh lobster versus cooked shrimps". It was a disgusting campaign, admittedly as most political campaigns have been.