The new govt has pledged to remove GST and reinstate SST to create a more prudent fiscal policy

By ALIFAH ZAINUDDIN / Pic By TMR

Local consumers will likely put a hold on big ticket spending until the Goods and Services Tax (GST) is fully replaced with the Sales and Services Tax (SST).

The new Pakatan Harapan government under Prime Minister Tun Dr Mahathir Mohamad has pledged to remove the unpopular 6% GST within 100 days of coming into power, and reinstate the SST in a U-turn move to create a more prudent fiscal policy.

Chairman of the board of trustees of the Malaysian Tax Research Foundation SM Thanneermalai said most consumers will opt to wait for the shift to take place before spending on big ticket items, such as cars and houses.

“If people don’t want to incur additional expenditure, they will wait. It is only a couple of months away before the new government abolishes the GST.

“This could lead to a slowdown in demand for certain items, but unlikely for essentials,” Thanneermalai told The Malaysian Reserve.

Former central bank governor Tan Sri Dr Zeti Akhtar Aziz had earlier said there would be no turning around on the proposed abolishment of the GST, which came into effect on April 1, 2015.

Despite concerns that the move would narrow the government’s revenue base and increase its reliance on oil-related revenues in the near term, Zeti is confident that the country would be able to meet its revenue requirements.

The GST has a broader range of taxable items compared to the SST, which only covers manufactured goods and selected services.

In 2017, GST collection was at RM42 billion and was projected to increase to RM44 billion this year.

On the contrary, the highest SST collection in 2014 stood at only RM17 billion — over RM20 billion short.

Thanneermalai, who is also the founder of tax consulting services firm Thannees Tax Consulting Services Sdn Bhd, said the reliance on the GST can be mitigated if issues of leakages can be effectively addressed.

“If there was no wastage, there may not even be a need for the GST at all.

Introducing taxes is not something anyone wants to do.

“But if the government needs money, they will have to impose a new form of tax to gain additional income,” he said.

In hindsight, Thanneermalai said the GST was not a mistake as price increases can be attributed to several factors such as the weakening of the ringgit.

“Initially, there was a period of inflation, but it has dropped. The price increase was more due to the currency, and let us also not forget that subsidies were removed. People identified the GST as the sole problem, but there are other factors at play,” he said.

However, he admitted that some businesses took advantage of the GST to raise their prices.

“Unfortunately, it was not possible to control all prices. There is some truth in that and it has led to the initial increase. But now it has settled, the system is working,” he said.

Over time, Thanneermalai said there is a possibility that the government could introduce new tax schemes, such as capital gains tax.