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KUALA LUMPUR: The federal government could reassess past implementation of the goods and services tax and reflect on how the consumption tax could be better implemented, considering all the possible advantages of the GST over other tax regimes, MIDF Amanah Investment Bank said.
The bank said communication about the GST implementation is critical as it will involve the people and the government should provide further clarification by highlighting the potential short-term impact and its strategies to alleviate them.
“GST reimbursement, which was an issue in the past, must be managed efficiently as any delay is unfavorable to the company’s cash flows, where the cost of doing business could be affected,” he said.
On top of that, some adjustments could be made after performing a cost-benefit analysis, such as in the taxable threshold and GST rates, he added.
The investment bank said there had recently been talk about resetting GST during the Covid-19 crisis; the tax could increase the government’s ability to weather the economic downturn with existing revenue schemes and without relying on additional national debt.
While GST continued to spread around the world and became a major source of revenue for governments, Malaysia, Myanmar and Brunei in Asean do not implement GST.
The bank said that GST, imposed since April 15, 2015, had contributed RM27 billion to government tax revenue for 2015. Collections increased to RM41.2 billion in 2016, more than offsetting the continued decline of RM3.1 billion in oil revenue.
For 2016 and 2017, GST contributed a cumulative RM85.5 billion, while total cumulative revenue from oil-related revenue was just RM10.9 billion in that period, the bank said.
GST contributed RM42.7 billion per year on average or almost 20% of annual revenue.
In contrast, the combined collection of taxes on sales and services represented 7.6% of government revenue in 2005-2014.
The suspension of GST along with a tax moratorium had raised consumer confidence to its optimistic level in 2018. Consumer confidence suffered after the SST was implemented on September 1 of that year and fell to an all-time low of 51.1 points in the first quarter of 2020 due to the Covid-19 pandemic.
The reinstatement of the GST could undermine consumer confidence if the tax regime is not clearly communicated to the public, he said. The authorities had to monitor the movement of prices after the imposition.
The bank said that among the positive attributes of GST was that it could minimize the tax cascade effect that is more prevalent under SST and also eliminate inflationary prices.
Therefore, given the same tax rates, consumers would pay less with GST compared to SST as they save on hidden taxes. At the same time, he said that the government could avoid any loss in taxes that are not collected, since the collection system is more complete.
“Despite the sensitivity and controversy with the implementation of the GST in the past, we were at least able to conclude that the positive impacts had helped improve the government’s fiscal position,” he added.
