In striving towards one of the Prime Minister’s goals of reducing the country’s budget deficit and broaden its revenue base, the Government has decided to introduce the Goods and Services Tax (GST) by mid-2011. The GST, which is proposed to be implemented in 3Q 2011, is projected to generate RM1bn in tax revenue annually after the first year of introduction. Nonetheless, to temper this non-populist decision, the proposed tax rate - at 4% - is the lowest in the Asia-Pacific while essential items and some services would be exempted. The move might give rise to customer concerns and mildly affect their cost of living. Businesses too would need to adjust their accounting systems as they would be collecting the tax on behalf of the Government. As such, in countering any negative perception among Malaysians who currently do not pay taxes, the Government would have to ensure that the tax collected is effectively channeled to the masses in terms of better public services and infrastructure. Personal and corporate tax rates may also be cut in the run-up to the implementation of GST, which will serve to enhance Malaysia’s competitiveness.
GST announcement not unexpected. Malaysia will be implementing a 4% GST by 3Q2011, with exemptions on some essential items and services to cushion the impact on the country’s poor, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said last Thursday. Essential items such as agricultural products (i.e. vegetable and fruits), poultry and livestock products, sugar, rice, flour, cooking oil and eggs will be exempted from the new tax. Services such as public transport, school and factory buses, taxis, tolls, land for agriculture, public infrastructure, residential property, healthcare and education will also not be taxed. Tourists will be given value-added tax benefits. Nonetheless, this new consumption tax is still expected to generate RM1bn (USD296m) in tax revenue annually after its first year of introduction. The GST Bill will be tabled in Parliament for first reading on 15 Dec this year while the second reading is scheduled for March next year. The proposed implementation will be within 18 months of the second reading. Meanwhile, the Government reckons that the move will not lead to excessive inflation. Prime Minister Datuk Seri Najib Razak has assured that the tax would be introduced “very gently” and that the Government would fine-tune its implementation if necessary.
Lowest GST rate in Asia-Pacific. Malaysia, along with Hong Kong and Brunei, are among the few Asian countries that have put off implementing a GST. Apart from China, Malaysia’s proposed 4% GST will be the lowest compared to those in other Asia-Pacific countries (see Figure 1). However, it is worth noting that Malaysia’s personal and corporate income tax rates, at up to 26% and 25% respectively, are still higher than those of its neighbours, especially Singapore, and Hong Kong. As such, this new broad-based consumption tax has given risen to suggestions, especially from opposition political parties, that the Government lower the existing individual and corporate income taxes in tandem with the introduction of the new tax.
GST announcement not unexpected. Malaysia will be implementing a 4% GST by 3Q2011, with exemptions on some essential items and services to cushion the impact on the country’s poor, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said last Thursday. Essential items such as agricultural products (i.e. vegetable and fruits), poultry and livestock products, sugar, rice, flour, cooking oil and eggs will be exempted from the new tax. Services such as public transport, school and factory buses, taxis, tolls, land for agriculture, public infrastructure, residential property, healthcare and education will also not be taxed. Tourists will be given value-added tax benefits. Nonetheless, this new consumption tax is still expected to generate RM1bn (USD296m) in tax revenue annually after its first year of introduction. The GST Bill will be tabled in Parliament for first reading on 15 Dec this year while the second reading is scheduled for March next year. The proposed implementation will be within 18 months of the second reading. Meanwhile, the Government reckons that the move will not lead to excessive inflation. Prime Minister Datuk Seri Najib Razak has assured that the tax would be introduced “very gently” and that the Government would fine-tune its implementation if necessary.
Lowest GST rate in Asia-Pacific. Malaysia, along with Hong Kong and Brunei, are among the few Asian countries that have put off implementing a GST. Apart from China, Malaysia’s proposed 4% GST will be the lowest compared to those in other Asia-Pacific countries (see Figure 1). However, it is worth noting that Malaysia’s personal and corporate income tax rates, at up to 26% and 25% respectively, are still higher than those of its neighbours, especially Singapore, and Hong Kong. As such, this new broad-based consumption tax has given risen to suggestions, especially from opposition political parties, that the Government lower the existing individual and corporate income taxes in tandem with the introduction of the new tax.
