This article first appeared in The Edge Financial Daily on May 17, 2018

KUALA LUMPUR: The move by the government to zero-rate the goods and services tax (GST) is a step in the right direction, say experts.

The finance ministry (MoF) announced yesterday that goods and services within Malaysia and those imported from abroad, which incur GST of 6%, will see the rate reduced to 0% from June 1. This does not cover goods and services that are already exempted from the GST.

Grant Thornton Malaysia executive director of indirect tax and goods and services tax Alan Chung deemed the move as “smart”.

“This is because it is the easiest to do, and represents the least cost to the business community. Zero-rating GST will allow transitional issues to be smoothened out. [For example] taxpayers have six years to claim their input tax credit and a lot of them may not have the proper invoice at the present time to claim them,” he told The Edge Financial Daily.

“If you have an abrupt cut-off of GST or repeal of GST, they may not be able to claim the input tax in the future. By zero-rating, the rights of the taxpayers to claim input tax within six years are sustained.

“This of course depends on how long the government maintains the GST legislation,” Chung added.

Prime Minister Tun Dr Mahathir Mohamad shared with the media last week that the government is looking at replacing GST with the sales and services tax (SST).

Axcelasia Inc chairman Dr Veerinderjeet Singh opined a better approach — but a more time-consuming one at that — would be to design the SST model first and pass the law for its implementation and then only “zerorise” the GST rate.

“The GST law can then be abolished following the [enactment] of the SST law. So, consumers may now see a zero GST and prices go down by 6% at least, but later may see a new tax imposed and prices will increase a little then depending on the rate of tax,” he said.

Veerinderjeet, who is also the past president of the Chartered Tax Institute of Malaysia and vice-president of the Malaysian Institute of Certified Public Accountants, urged the government to call for a total review of the existing tax system.

“This is so that we can ensure that we have a tax system that can take us into the next few decades and assist in generating surplus budgets in the future.

“That needs all stakeholders to provide their input and the professional accounting, and tax bodies and chambers of commerce should be asked to submit their views and the review should be led by the private sector with the MoF providing secretariat support,” he said.

UOB Malaysia economist Julia Goh commended the Pakatan Harapan government’s swift move in addressing the GST issue, which was one of the 10 promises in its election manifesto.

“Given that the new government had clearly communicated that [the] GST would be abolished, doing it sooner rather than later is better for growth, as businesses and consumers would have delayed spending in anticipation of the GST removal.

“However, the impact on fiscal position remains uncertain. Encouraging are signs that the new government is already taking action to reduce wastage and leakages,” she said.

SME Association of Malaysia president Datuk Michael Kang said the move would benefit small and medium enterprises in terms of reduction of compliance costs.

“The cost of doing businesses will go down. [Currently,] compliance costs for GST are high as you need to engage a lot of consultants and staff as mistakes in [the] GST filing can be costly in terms of penalties,“ he said.