Thursday, October 14, 2010

Malaysia defers implementation of GST

The finance minister does not provide any new date but maintains that the GST is still important in ensuring a strong and sustainable fiscal position for Malaysia's long-term growth.

The government has postponed the implementation of the goods and services tax (GST) to provide more breathing space for Malaysians.

The Ministry of Finance (MOF), in a brief statement yesterday, said the decision was to allow for a more inclusive engagement with "all segments of rakyat pertaining to the GST".

Economists contacted were not surprised with the decision as they had expected the unpopular tax to take several years to implement.

The MOF did not provide any new date but maintained that the GST is still important in ensuring a strong and sustainable fiscal position to support the country's long-term economic growth.

"The government will take into account the interest and welfare of the society to ensure the implementation of GST is well received," it noted.

The GST Bill, which was tabled for its first reading in Parliament in December last year, was originally planned to be implemented by 2011 to replace the existing services and sales tax.

Based on a proposed rate of 4 per cent (as opposed to the sales and service tax's rate of between 5 and 10 per cent), its implementation was projected to generate an additional RM1 billion of revenue annually.

RAM Holdings group chief economist Dr Yeah Kim Leng said the postponement meant that there is more flexibility to delay balancing the government books.

"As long as the government is able to reduce the fiscal deficit and ensure it is on a declining trend, then it will be in a position to forestall the implementation of GSTn ... if the government can firm up the implementation by 2012, some announcement can be made next year," Yeah added.

The government has targeted to reduce the fiscal deficit to the gross domestic product to 5.6 per cent this year from 7.4 per cent in 2009.

Under the 10th Malaysia Plan, the target is to cut the fiscal deficit further to 2.8 per cent by 2015.

Yeah said the government can look to other sources to boost revenue. They included divestment of government assets, privatisation as well as public-private partnership and other possibilities to make spending more efficient and cut down on wastage.

Meanwhile, the Associated Chinese Chambers of Commerce and Industry Malaysia (ACCCIM) said there should be a two-year grace period before the GST is implemented. This was to enable businesses to adapt to the change.

ACCCIM chairman of commerce committee Koong Lin Loong said it supported the proposed GST as it would allow for further reduction in corporate and indirect taxes, which in return can attract more foreign direct investments (FDI) into the country.

"The proposed GST will provide a more broad-based tax collection and revenue if it is to replace the sales and services tax of 10 per cent and 15 per cent respectively.

"It will also provide another source of revenue for the government ... from being overdependent on returns from oil and gas, which currently contributes 40 per cent. In time we cannot depend too much on this sector," he said.

GST are being used in 146 countries, and in Southeast Asia, only Malaysia, Myanmar and Brunei do not impose GST, he added.

On ACCCIM's wish list for Budget 2011, Koong said it would like to see a reduction in taxes for small and medium enterprises from 20 per cent to 18 per cent.

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