Unwise to abolish GST and rely on oil revenue, MOF official says

Sivanesan described the GST abolition as inappropriate and a backward move. — Reuters pic
Sivanesan described the GST abolition as inappropriate and a backward move. — Reuters pic

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PUTRAJAYA, May 3 — Replacing the goods and services tax (GST) by relying solely on revenue from a host of commodities such as petroleum is not a wise decision.

MA Sivanesan, Deputy Undersecretary (Indirect Tax & GST Policy Sector), Tax Division at the Ministry of Finance, said this was due to the role played by the GST as a form of consumption tax, which was so stable in any economic situation, thus providing stability to government revenues.

“This being so compared to commodities like petroleum, whereby the price fluctuation is difficult to control due to external factors. So, relying on oil revenue is not a wise choice,” he told Bernama in an interview here Wednesday.

He described the GST abolition as inappropriate and a backward move as its original objective was to reduce dependence on petroleum revenue when it was introduced in 2015 based on the government’s experience in the face of the global oil price crisis.

“If we were to look back to 2016, when the world oil price dropped to about US$30 per barrel, it had an impact of RM30 billion on our economy. In this regard, relying on oil revenue is not the best way,” he said.

He said in fact, the effectiveness of the GST, that had been adopted in over 160 countries, had also attracted at least three more countries to implement it after Malaysia, namely India, Saudi Arabia and the United Arab Emirates.

Sivanesan said attributing the GST as the sole cause of rising cost of living was inaccurate as a post-implementation study conducted in 2015 found that it contributed less than 1.0 per cent to the tax.

The other factors are demands for goods or services exceeding supplies and the exchange rate affecting the prices of imported products, he said, adding that, ”We have to admit that most of the goods that we consume are imported. When the ringgit declines, it impacts the prices.”

Sivanesan said the GST model adopted by Malaysia was also aimed at ensuring certain basic goods and services, including food and transportation, were given exemption.

He pointed out that the 6.0 per cent rate imposed was ‘neutral’ rather than aimed at boosting government revenues drastically, instead it was to compensate for the sales and service tax (SST) that was abolished to make way for the GST.

“The government is very careful to ensure that the rate is not burdensome and the revenue collected is neutral compared to the previous SST collection,” he said.

Sivanesan said to ensure that low and medium-income groups were not burdened with the GST, the government had implemented various initiatives, including the 1Malaysia People’s Aid (BR1M) for eligible groups instead of providing subsidies across the board like before.

The government also reduced income tax rates with the objective of increasing household disposable income, thereby maintaining the people’s purchasing power, he added.

He said the GST structure also provided relief and zero rated 31 categories of goods and services after taking into account the socio-economic situation of the people.

In fact, Sivanesan said even though several international organisations, including the World Bank and the International Monetary Fund had called for the scope of relief and imposition of zero rated GST to be reviewed, the government did not have such plans at this time.

“We find that the list of zero-rated or exempt items gives a very good impact on tax progress. It means the low-income group will remain protected and not burdened with GST,” he said.

On the possibility that the GST rate will be raised, he said the government has no plans in that direction at the moment.

However, the GST could be reviewed if there were a need to raise or lower the rate based on economic factors, he added.

“If one day we find that our economic level is so good and the people’s income improved, we may look into the need to review the GST rate,” he said.

He said among the countries that had done so was Thailand which lowered the GST rate to 7.0 per cent from 10 per cent in the late 1990s due to economic issues.

Sivanesan said so far, the number of businesses that had registered for the GST had risen to 70,000, nearly doubled compared to when it was first implemented in 2015.

In terms of collection, he said the GST collection grew year-on-year to RM44.3 billion in 2017 from RM42 billion in 2016 and RM27 billion in 2015.

The GST contribution to the government revenue also rose to 20 per cent last year from 16 per cent in 2015, while the previous SST contribution was only around 8.0 per cent, he said. — Bernama

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