A case for the maligned GST

BENEATH the ocean of tax reform is an all too familiar rumbling. GST-zilla, the bogeyman of elections past and future, now stirs back into life as the Barisan Nasional says it will champion the return of the all-encompassing tax after the next general election.

Almost a political slur word, the Goods and Services Tax (GST) has been a political piñata. Beaten for political mileage, GST nonetheless contains goodies that go far beyond what the Sales and Service Tax (SST) offers.

There are cons too but when weighed against the plusses and negatives, GST does make sense, especially when it comes to avoiding embedded costs increases and also revenue raising for the government.

The extra revenue would certainly come in useful as the government pursues a universal basic income target where it aims to raise the incomes of the B40 to adapt to the cost pressures households are facing, especially when it comes to cost-of-living issues.

Inflation has been tame at 1.4%, making it an ideal time actually to make that jump towards GST.

The potential return of GST is seen as a fairer taxation system and a means to bolster the government’s tax revenue.

GST at its peak in 2017 managed to collect RM60.5bil for the government and SST managed to rake in RM45bil in 2024.

Although the SST is seen as less punitive compared with GST just based on collection, the fact is both taxes are regressive.

The “edge” GST has on SST is the absence of a cascading effect where there is a layering effect with SST. It is where a tax is added on top of a tax as a good moves hands from factory to the final consumer.

With GST, the input taxes are reimbursed along the way until the final consumer pays the final tax amount.

With there being no layering with GST, the impact on inflation tends to be contained in some ways.

But what torpedoed GST when it was introduced was the broken reimbursement process. Businesses found that the tax reimbursements were delayed and hence increased prices by a dramatic amount to compensate for the delay in being reimbursed.

The acknowledgment by the government on that was when the government had to borrow money from the national oil company to reimburse taxes.

It was reported that the government used RM30bil from special dividends divvied by Petroliam Nasional Bhd to help pay RM37bil in outstanding GST and income tax refunds.

Delays in returning tax refunds remain a thorn with the government set to reconcile tax refunds by the end of this year.

Persistent delays in returning what is owed to the people will cause trust deficits in any future return to a GST system because of how that has been allowed to continue.

There needs to be a commitment going forward by the government that all refunds will be entertained expeditiously to avoid distrust and worse still, a repeat of what happened to prices when GST was introduced the first time around.

Should GST attempt a return to Malaysia, the issue is will it be subject to politicisation like before?

It was easy to beat on GST before because there never was a broad-based consumption tax but now having lived with an expanded SST and a host of other taxes introduced to compensate for the lack of consumption tax ringgit, there should be less pushback when it is reintroduced.

The messaging also has to be spot on with the return of GST. With expanded collection, it will mean more Malaysians will end up paying a consumption tax. There has to be a corresponding programme to show how that extra tax monies will be sooner.

Potentially, better healthcare services will be a definite plus when justifying higher taxes. Also, as the government pushes for universal basic income, cash handouts could feature in the rationale for higher consumption taxes but there needs to be a fine balance between driving towards a welfare state and helping the underprivileged.

Using the high tax revenues to drive down government debt will need to be part of any transparency programme by the government.

Also, rationalising government yearly spending so that savings can be gleaned from more effective spending needs to be not only communicated to the masses but followed through. More tax income must not equate to just more spending.

As government finances improve and the debt burden gets dealt with, the other side effect will see the ringgit benefit. Most Malaysians will welcome a stronger ringgit and that can also lead to other reforms that will only help the country in its push towards becoming a lasting and sustainable high-income nation.