Lim Guan Eng defends scrapping GST, says new sales and service tax halves suffering for Malaysians

Finance Minister Lim Guan Eng said that unlike the goods and services tax, which hits 60 per cent of items under the consumer price index basket, the sales and services tax covers only 38 per cent of the items.
Finance Minister Lim Guan Eng said that unlike the goods and services tax, which hits 60 per cent of items under the consumer price index basket, the sales and services tax covers only 38 per cent of the items. ST PHOTO: ARIFFIN JAMAR

KUALA LUMPUR - Finance Minister Lim Guan Eng has insisted that Putrajaya's plan to replace the goods and services tax (GST) imposed by the previous government will put billions back into the pockets of Malaysians, his third defence of the move since Monday.

He said this in Parliament on Thursday (July 19) when quizzed over Pakatan Harapan's (PH) plan to reintroduce the sales and services tax (SST) in September, which has sparked concern that Malaysia will face yet another round of price hikes.

"We don't deny the impact of SST (but) GST is a cradle-to-grave tax. The suffering of the public under SST will be half that of GST," he said in his response to a question by Ayer Hitam MP Wee Ka Siong, who was a minister in the ousted Najib Razak administration.

Mr Lim said that unlike GST, which hits 60 per cent of items under the consumer price index basket, the SST covers only 38 per cent of the items.

Government estimates put GST collection at RM44 billion (S$14.8 billion) a year and SST at RM21 billion annually. PH had pledged in its election manifesto that it would do away with GST if it came to power.

The implementation of the broad-based consumption levy had caused a spike in prices three years ago.

It was effectively scrapped by the Mahathir Mohamad government, which zero-rated the tax last month, but the cost of living has not come down.

The scrapping of GST has nonetheless slowed inflation rate to 0.8 per cent for the month of June, its lowest since February 2015, when it was at 0.1 per cent. The GST was introduced in April 2015 to replace the SST.

But the opposition has alleged that the new SST rate of 10 per cent for sales and 6 per cent for services will be inflationary when the new tax is introduced in six weeks.

Former premier Najib and his Barisan Nasional (BN) colleagues have repeatedly criticised the abolition of the 6 per cent GST in recent days.

"Pakatan's promise in its election manifesto to lower the prices of goods hasn't been achieved. This will be a double whammy for the people," Najib said on Tuesday.

 

Speaking to reporters after exiting the House of Commons, Mr Lim acknowledged there will be a period of adjustment but said “in the long run it will reduce cost of living” and drive the economy.

Opposition Islamist party Parti Islam SeMalaysia (PAS) has disagreed with both taxes, insisting that a “wealth tax” on corporate deposits and gains on the stock market would net RM52 billion annually.

Some experts and segments of the public have also called on the government to review its decision to do away with GST, which they say is a more transparent tax.

Former youth and sports minister Khairy Jamaluddin has also gained some support for his suggestion that PH reduce the GST rate, rather than reintroduce SST which “is inefficient with many leakages”.

Mr Lim agreed that “if we ask which is more transparent, of course GST” but “huge irregularites” in the refund of input tax meant that it could not be continued.

He said the impact of the multi-stage tax on prices was compounded because the previous administration delayed or did not pay refunds for GST on inputs.

However, the DAP secretary-general said he would reveal the problems with the GST refunds only at a later date.