News analysis

GST to save Malaysian economy, says Najib

He contends new tax collections will offset huge budget shortfall

Mr Najib presenting the 2016 Budget in Parliament yesterday amid a tough economic backdrop.
Mr Najib presenting the 2016 Budget in Parliament yesterday amid a tough economic backdrop. PHOTO: REUTERS

Malaysia's unpopular goods and services tax (GST), implemented in April, was hailed yesterday by Prime Minister Najib Razak as a saviour of the economy, as it will help cover a huge budget shortfall next year caused by a drop in petroleum revenue.

The broad-based 6 per cent tax has been panned widely by the opposition, and blamed by most Malaysians for spiking the prices of everything from a cup of tea to cars.

"As a responsible government, we will continue to make the right decisions, though not popular, in the best interest of the rakyat and the nation," Datuk Seri Najib said in his Budget speech, referring to the GST.

The consumption tax replaced the sales and services tax (SST).

Mr Najib said the government's collection of revenue through the SST would have amounted to only RM18 billion (S$5.9 billion) for next year. The GST is expected to rake in RM39 billion.

Mr Najib presenting the 2016 Budget in Parliament yesterday amid a tough economic backdrop. PHOTO: REUTERS

"If this were to happen, the government would have been forced to borrow, including to pay civil servants' salaries; the nation's credit rating would be downgraded; and all borrowing costs, including personal loans, business loans and housing loans, would definitely be higher," said Mr Najib to shouts of disagreement from the opposition bench.

Even so, to placate public anger, he announced yesterday new exemptions to the GST. They included zero ratings for some types of medicines and food items.

Mr Najib also listed GST relief for teaching materials and equipment bought for approved programmes. In addition, he said rebates equivalent to the amount of the GST paid would be credited back directly to prepaid mobile user accounts.

The opposition - which wants to abolish the GST and beef up government coffers by reducing wastage and plugging corruption instead - was not impressed and argued that the one-off financial aids announced by the premier for low-income earners would not offset the financial strains created by the GST.

Opposition leader Wan Azizah Wan Ismail said that, according to the opposition's calculations, an individual could end up spending about RM1,300 extra a year because of the implementation of the GST. This would exceed the roughly RM1,000 given to poor households under the 1Malaysia People's Aid (BR1M) scheme.

"The GST is very taxing for ordinary people, and life is made difficult and economically repressive," Datuk Seri Wan Azizah told reporters at the Parliament lobby.

Opposition MP Ong Kian Ming said middle-income citizens had not been given sufficient reliefs in the Budget. He said the government should consider lowering their income tax rates.

Among economists, views are mixed regarding the efficiency of the consumption tax.

Economist Jalilah Baba, who is also president of the Malaysian International Chamber of Commerce and Industry, said the GST is a more efficient way of tax collection and would bring better and faster results in terms of government revenue.

"The opposition's idea of removing the GST is ridiculous unless there is another source of income that is available. Efforts such as fighting corruption and other types of taxes could also bring in revenue, but those are long term and not immediate," Datuk Jalilah told The Straits Times.

Professor Mohamed Mustafa Ishak, who serves as political cluster chief for the National Professors Council, told The Straits Times that Malaysia could not have avoided implementing the GST as no country could risk relying heavily on petroleum revenues.

However, to assuage voters, he said the government must continuously ensure proper implementation and show that the taxes collected are spent wisely.

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A version of this article appeared in the print edition of The Straits Times on October 24, 2015, with the headline GST to save Malaysian economy, says Najib. Subscribe