‘I worry our GST is a watered-down version’

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KUALA LUMPUR: There is concern that the upcoming goods and services tax (GST), which will be introduced on April 1, has been watered down from similarly structured tax systems implemented in other countries.  

Taxand (M) Sdn Bhd chairman Dr Veerinderjeet Singh said he was a proponent of the GST as moving towards a consumption tax was “the only way to go” for Malaysia.

“The thing that worries me is that our GST now appears to be a watered-down version of what would have been a great revenue-generating tool from a technical point of view. It would have been all encompassing — a low-tax rate, very minimal exemptions and no zero ratings except exports, which is the traditional form of the tax,” he said during his presentation at a post-Budget dialogue organised by the Malaysian Economic Association yesterday.

“Unfortunately, we need to manage this (the way the tax is implemented) because we need to also help the lower-income group,” Veerinderjeet said, but pointed out that it was not “necessary” for Malaysians to ask for income and corporate tax reductions to offset the effect of the GST.

Citing Singapore as example, he said when the GST was introduced there, its government had to bring in immediate income tax reductions because Singaporeans had clamoured for them as they had never paid consumption taxes before.

Similarly in Malaysia, the public is not comfortable with the implementation of the GST without some form of relief elsewhere.

“[So] the government has listened to feedback and has figured out a balancing act of giving away some income tax revenue in order to introduce the GST. That actually makes fiscal sustainability and management even more difficult,” said Veerinderjeet.

In his personal view, by 2020, Malaysia will see a 20% corporate tax rate, a 20% top-rate of personal income taxes and a possibility of a 10% GST. On possibly using Pakatan Rakyat’s proposed capital gains tax (CGT) in lieu of the GST, Veerinderjeet said while a limited form of capital tax had existed in the form of the real property gains tax, widening that across the board would simply be an additional burden for everyone to bear.

“Being a capital-importing country and relying on attracting investors, introducing a full-blown CGT would bring great negativity to the country and it would just be an additional tax to pay,” he said.

He said when Malaysia has reached a high-income, developed nation status, then perhaps such an implementation could be an option.

Meanwhile, Ministry of Finance secretary-general Tan Sri Mohd Irwan Serigar Abdullah said the government expects to collect RM690 million from the GST next year, after subtracting the amount given as relief and incentives.

 

This article first appeared in The Edge Financial Daily, on October 14, 2014.