Economic Affairs

Malaysia's GST a victim of populist politics

The new Malaysian government's decision to bring GST down to zero from Friday is an easy decision to make - but making up for its lost revenue will be tough.

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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.

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A version of this article appeared in the print edition of The Straits Times on May 30, 2018, with the headline Malaysia's GST a victim of populist politics. Subscribe