It is highly possible that new taxes would be introduced to enhance the govt’s revenue collection, says analyst
by ASILA JALIL / Pic by TMR FILE PIX
THERE is a possibility for the government to reintroduce the Goods and Services tax (GST) post Covid-19 pandemic to enhance its revenue collection after it provided various fiscal stimulus packages to support the declining economy amid the pandemic.
Malaysian Rating Corp Bhd head of economic research Firdaos Rosli said the pandemic had left a substantial economic scarring which is expected to remain for several years.
“It is highly possible that new taxes would be introduced to enhance the government’s revenue collection and improve its debt service capability.
“It is not sufficient for the government to rely on its current taxation system amid high unemployment, stagnating wages and several structural issues. The GST could be reintroduced and various tax reliefs could be downsized or eliminated altogether,” he told The Malaysian Reserve (TMR) recently.
The government had given eight stimulus packages since the beginning of the pandemic last year worth RM530 billion in total with direct fiscal injections totalling RM83 billion.
Firdaos said the government may undertake austerity measures once the recovery path is clear due to the “debt-led stabilisation” after the pandemic ends.
As the government allocates the majority of its expenditure to stabilise the economy post-Covid, he said it would leave very little room for development expenditure to take place in the coming years.
“It is of no doubt that Malaysia, like many other nations, would continue to rely on debt to fund its fiscal initiatives as government revenue is not sufficient. The amount of debt undertaken by the government would rise,” he said.
He added that the government’s financing for Covid-19 related debt will be long-term. Since the first Covid-19 relief package was announced in March last year, about 80% of Malaysia Government Securities (MGS) and Government Investment Issue (GII) issuances valued at RM64.8 billion have tenures between 10.5 years and 30 years.
Year-to-date, Firdaos said the government issued more MGS and GII with tenures between five years and 10 years to balance its debt maturity profile.
“In total, the gross issuances of MGS and GII since the first fiscal stimulus was announced amounted to RM207.3 billion, of which 47% or RM98.3 billion have tenures between 10.5 years and 30 years, and 41% or RM86 billion have tenures between 3.5 years and 10 years,” he said.
The GST was first introduced in April 2015 at a rate of 6% under the Barisan Nasional administration.
The Pakatan Harapan government, which took over administration in 2018, suspended the consumption-based tax before rolling out the Sales and Services Tax in September of the same year.
Socio-Economic Research Centre ED Lee Heng Guie told TMR that he expects the government to shift its focus on increasing revenue after the pandemic, which means GST might be its top agenda.
He said what matters most would be the timing the government might want to announce its rollout to avoid growing concerns among the public, especially as the pandemic had a significant impact on both individuals and businesses in the country.
“If the country is set on track for recovery this year, then maybe during its tabling of Budget 2022, the government could give some indicator whether it wants to reintroduce the GST or not,” he said.
As the country had implemented GST before, Lee said it is best for the government to learn from past mistakes and be more transparent on the implementation to ensure a smooth rollout.
“Maybe, the government can start introducing it at 4% and then see whether it needs to increase after. It cannot start with a high rate to avoid effects on inflation, however, the rate cannot be too low because then the government will not have much revenue enhancement,” he added.