Finance Ministry: SST is back, govt spending cuts to cushion GST shortfall

The ministry said that the shortfall in government revenue would be cushioned by 'specific revenue and expenditure measures' to be announced. — AFP pic
The ministry said that the shortfall in government revenue would be cushioned by 'specific revenue and expenditure measures' to be announced. — AFP pic

KUALA LUMPUR, May 17 — Malaysia will start using the Sales and Services Tax (SST) again and Putrajaya will trim its spending to make up for the shortfall in revenue, the Finance Ministry (MOF) announced today.

Just a day after announcing that the goods and services tax (GST) will be zero-rated from June 1, the ministry said that the shortfall in government revenue due to the plans to stop collecting GST at a rate of 6 per cent would be cushioned by “specific revenue and expenditure measures” to be announced.

“The Sales and Services Tax (SST) will be reintroduced. Expenditure reduction will begin with rationalisation, efficiency measures and reduction in wastages,” the ministry said in a statement today.

“The fiscal reform initiative is already underway,” it said earlier in the statement, referring to changes to the government’s tax rates and spending levels.

The ministry also noted that oil prices have been higher than the estimated price of US$52 per barrel that the government used when drawing up Budget 2018.

Newswire Bloomberg yesterday reported that oil was trading close to US$71 per barrel.

“This provides fiscal buffers for the immediate future,” the ministry said, referring to the higher oil prices that will give the government more space to maneuver for its budget.

“Fiscal responsibility, transparency and governance will be a paramount consideration in rolling-out the fiscal reform,” it concluded.

The federal government’s previous administration led by Datuk Seri Najib Razak had been working towards achieving a government budget that balances between its spending and revenue, and had targeted to cut budget deficit from three per cent to 2.8 per cent this year.

Najib had in the past hailed the GST introduced on April 1, 2015 as the country’s “saviour”, following a fall in global oil prices then that had caused lower revenue and forced oil-producing Malaysia to revise its government budget.

Pakatan Harapan (PH), the coalition that was voted into power in the 14th general election, had promised to abolish the GST within 100 days of forming government.

Prime Minister Tun Dr Mahathir Mohamad had on May 10 said the federal government will remove the GST and temporarily switch back to the previous Sales and Services Tax (SST) — a regime which PH had said is “fairer”.

Former Bank Negara governor Tan Sri Zeti Akhtar Aziz, who sits on the newly-formed Council of Eminent Persons advising the PH government on the economy and finance, had recently said the country would still have sufficient revenue even after the GST is abolished.

Zeti said this could be done by re-prioritising projects, improving efficiency, cutting wastage in the public sector and by seeking new revenue sources.

While the GST has yet to be abolished, the zero-rating in June would in effect mean that no GST will be collected.

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