KUALA LUMPUR (May 17): Moody’s Investors Service has reiterated its view that the Pakatan Harapan government’s plans to abolish the goods and services tax (GST), if implemented without adjusting measures, is credit negative. 

“The extent to which offsetting measures, if any, will help recover the revenue loss from GST, will allow us to determine the exact impact on Malaysia’s fiscal position, going forward,” Moody’s vice president and senior analyst Anushka Shah said in a statement today.

“However, if GST is eliminated, it would increase the government’s reliance on oil-related revenues and would also narrow the tax base,” Shah added.

According to Moody’s, while revenue losses this year will be offset to some degree by higher oil prices, this development is unlikely to be a structural — or act as — a permanent substitute for GST itself. 

Moody’s latest comment was trailing behind the Finance Ministry’s announcement yesterday, which said the GST will be zero-rated from June 1.

In its election manifesto, Pakatan Harapan had listed the abolishment of the GST as its top priority, alongside stabilising the oil price by re-introducing the targeted fuel subsidy mechanism.

On Monday, Moody's stated removing the GST would introduce risks of a narrowing revenue base and an increased reliance on oil-related revenue.

Implemented since April 1, 2015, the GST is currently imposed at a 6% rate. In 2017, the government collected RM44.3 billion in GST, which is equivalent to 3.3% of the country's gross domestic product.

GST is governed by the Goods and Services Tax 2014, an act of parliament which governs the collection of the indirect tax.