KUALA LUMPUR - Malaysia's new government has tabled Bills to repeal the highly unpopular goods and services tax (GST) and re-introduce the sales and services tax (SST), as part of a move to fulfill its election promise.
The Finance Ministry tabled the Bills for their first reading in Parliament on Tuesday (July 31), with the abolition of the GST to take effect at a date to be determined by the Finance Minister.
The rates of the SST will be fixed by the Finance Minister, but these will have to be approved by lawmakers in the Lower House.
With taxation falling under the purview of Finance Minister Lim Guan Eng, he will have the prerogative to determine which goods and groups of people are exempt from the SST.
The new SST Bill proposes harsher punishments for tax evaders. Repeat offenders face up to seven years imprisonment and fines of up to 40 times the sales tax amount, compared to the old legislation which imposed a maximum jail time of three years with fines capped at RM50,000 (S$16,800).
The ruling Pakatan Harapan (PH) coalition had promised to repeal the six percent GST, a tax which it had called regressive due to its vast reach. After PH swept to power in May, it cut GST to zero from June 1, effectively scrapping the tax.
The GST was introduced in 2015, with annual collection hitting RM44 billion (S$14 billion) last year.
Former prime minister Najib Razak introduced the GST to help raise government revenue, but the tax has been widely criticised for hiking up prices and contributing to rising living costs.
Najib has insisted the GST is better than the SST.
"GST is a much more superior tax system employed by more than 170 countries. The tax system will benefit the people in the long run," he told The New Straits Times earlier this month.
His fellow opposition Barisan Nasional (BN) lawmakers have defended the GST, saying that it provides more transparency and efficiency.
Mr Lim conceded this but said the sales and services tax is less of a burden on the people.
“A more efficient tax doesn’t mean that it’s good. It may be good for the government but not necessarily so for the people,” he said in Parliament on Tuesday.
The minister warned that the country’s finances could be affected if the new SST Bill was passed by the PH-controlled Lower House, but not approved by the Senate, which is controlled by BN appointees.
“I call on the senators, who are mostly from Barisan Nasional, to respect the democratic process and pass the Bill when it reaches them. Do not sabotage us by allowing for the goods and services tax to be abolished but then block the SST Bill,” he said.
The new administration has a self-imposed deadline of Sept 1 to implement the SST.
Goods and services that should see prices drop after being exempted from SST include baby formula, banking transactions, 250cc motorbikes, medical fees in private hospitals and individual health insurance. These items previously attracted GST.
With the new sales tax affecting a smaller range of goods, economists have forecast that Malaysia’s inflation will dip but the government’s annual estimated tax revenue will be reduced by half to RM21 billion.