GST can stabilise, drive economy in tough times - experts

An exclusive report by Aishah Mohmad Afandi

KUALA LUMPUR, Oct 3 – The possible reintroduction of the Goods and Services Tax (GST) could be used as a stabilisation policy when the country’s economy faces strong headwinds, say experts.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said any effort including the possible reversal of the current tax system, the Sales and Services Tax (SST), to the GST in the future could buffer the downtrend impact.

He added that as the global economy faces a slowdown, an efficient tax system is needed to ensure the local economy can face the pressure.

Reducing dependency on oil revenue

 “It would be good in terms of increasing the government’s revenue, as relying on oil revenue is risky as oil prices are constantly in a volatile situation,” he told Bernama.

At this juncture, Afzanizam said Petronas should increase its oil reserves, both domestic and overseas, hence a tax system that does not rely on oil revenue to cover the shortfall is much needed.

However, he emphasised the need to provide clear information in a transparent manner in order to avoid any misconception about the new economic policy currently being implemented.

Tax experts said with the current oil price hovering around US$55 to US$65 per barrel, the 2020 Budget should be drafted based on that price range to avoid over-dependency on Petronas’ reserves.

Since last year, benchmark Brent Crude had peaked at US$84 per barrel before sliding to US$53 per barrel in January, and hovering between US$55 to US$75 until today.

View of new tax from business perspective

Meanwhile, YYC Holdings Sdn Bhd CEO Datin Yap Shin Siang said it is undeniable that the GST is a more efficient system for businesses.

“This is because currently under the sales tax regime it becomes a cost to businesses, but under GST it is claimable as input tax.

“We also suggest several improvements in areas such as simplifying the tax codes and reporting system as well as speeding up the refund process,” she said.

Both Afzanizam and Yap agreed that the GST could start at a lower rate than the previous six per cent, possibly at three per cent.

Prime Minister Tun Dr Mahathir Mohamad said earlier today that the government might consider reviving the GST, which was abolished last year, and that it could be reintroduced at a lower rate to help boost government coffers.

“If that is what the people want, we will review it, if it is better than SST,” he said, adding that it might be too late to reinstate the tax in the 2020 Budget to be tabled this month.            The GST was first introduced in April 2015 at six per cent before it was abolished and replaced with the SST on Sept 1, 2018.

Impact on equity market

From the equity perspective, analysts agree that although reintroducing the GST might cause uncertainty, this would be temporary as the GST is known as a more effective tax measure that has been implemented in various countries.

An analyst said that talk about the reimplementation of the GST has been around for a while now since the oil price has not gone above US$80 per barrel, the price on which the previous budget was based.

“The government has to tap into Petronas and Khazanah’s coffers which had left an impact on their credit ratings, which in turn have had a direct impact on equities held by them,” she said.

She added that a stronger tax base would not only boost the local economy, but could also strengthen the equity market as 70 per cent of the local bourse is government-linked.

“A stable tax collection will lead to a stronger fiscal position, hence reducing the dependency on the cash reserves held by sovereign funds and Petronas. It would be a short-term pain but for a long-term gain,” she said.

-- BERNAMA