On May 16, Malaysia's Finance Ministry announced that the country's goods and services tax (GST) will be reduced from 6 per cent to zero from June 1. This decision, driven more by populist politics than by sound economics, could have serious implications for Malaysia's fiscal position and economic future. It will also limit the ability of the new Pakatan Harapan government to push ahead with what seems otherwise a progressive and inclusive agenda.
Malaysia was a late adopter of the GST, which came into force in the country only in April 2015, by which time more than 160 countries already had it. Although long delayed - Malaysia had originally planned to introduce the tax in 2011, but was thwarted by political resistance - it was a pragmatic and far-sighted move.