DATUK SERI (DR.) ENG WEI CHUN – ANALYSIS OF MALAYSIA’S TAX SYSTEM
Currently, the greatest pain for Malaysians is the depreciation of the ringgit. This issue transcends race, skin colour, and religion, as it is directly impacts the daily lives of every Malaysian. The depreciation of the ringgit leads to higher prices for imported goods, which, in turn, drives up the overall price level, causing inflation and burdening people’s daily lives.
Personally, I believe that the value of the ringgit is currently undervalued, and the government has already begun implementing a series of measures to strengthen its value which aim to enhance the confidence of both investors and the public in our currency. Beyond maintaining political stability and implementing sound monetary policies, tax policies also play a crucial role in boosting the value of the ringgit
Malaysia’s tax policies have long been a focal point of attention for both the government and the public, with the Goods and Services Tax (GST) and the Sales and Services Tax (SST) being the two main tax systems in the country。
In April 2015, Malaysia introduced the Goods and Services Tax (GST), which generated approximately 44 billion ringgit annually to the national treasury. However, the GST was abolished in June 2018, after only three years of implementation. Later in September of the same year, the government reintroduced the Sales and Services Tax (SST), which remains in effect today. The SST is expected to generate around 21 billion ringgit in tax revenue annually.
Out of 193 global economies, 175 (or 90%) have implemented some form of GST, making it the most widely adopted tax system in the world. Despite this global prevalence, the implementation the GST in Malaysia was initially viewed as a “golden egg-laying goose” has faced numerous challenges. To better understand the issue, let’s first take a look at what GST and SST entail.
GST is a multi-tiered tax system. When Malaysia first introduced it in 2015, the tax rate was set at 6%, and it applied at every stage of the supply chain—from manufacturers selling to wholesalers, to wholesalers selling to retailers, and finally to consumers. At each stage, a 6% GST had to be paid, although essentials like food, medical services, and public transportation were exempted.
Under the GST system, every stage of the supply chain required proper documentation to track the tax paid to ensure transparency and accountability.
In contrast, the Sales and Services Tax (SST) is a single-stage tax, which is only levied at certain stages. Manufacturers or importers pay sales tax (ranging from 5% to 10%), while consumers pay service tax (currently set at 8%). This system is simpler, but its scope is more limited compared to the multi-tiered GST.
From my perspective, refining and improving the previously implemented GST system would undoubtedly benefit both the nation and its people. A well-structured tax system not only generates more revenue for the government but also enhances Malaysia’s reputation and boosts the confidence of foreign investors in the international stage.
From a business and consumer standpoint, the impact of SST on prices may be relatively minimal. However, from a systemic and economic perspective, GST is a more transparent and equitable tax system, which has the potential to generate more stable and significant revenue for the government.
I personally believe that setting the GST rate at 6% initially could overwhelm many people. My suggestion is to start with a 3% rate for the first three years and then gradually increase it by 1% every two years until it reaches the 6% ceiling.
This approach would give the public sufficient time to adjust and prepare mentally. I believe that when a new tax policy is introduced, it is important to provide reasonable adjustment period so that people can adapt more smoothly.
Furthermore, from the perspective of foreign investors, the implementation of GST can increase government revenue and contribute to greater fiscal stability, which in turn would significantly boost investors’ confidence in the ringgit. This confidence could attract more foreign investment into Malaysia, contributing to the appreciation of the ringgit. As a result, the self-esteem of the Malaysians would also be greatly enhanced, which may help reduce the outflow of local talent seeking opportunities abroad.
Therefore, reintroduction GST would be highly effective measure to deliver great results. I believe that Malaysians who understand the proper timing and possess a long-term vision, would strongly support and encourage the government to adopt the GST system.
Nevertheless, the success of any policy largely depends on the cooperation between the people and the government. With public support and active promotion from the government, the well-being of ordinary citizens can be improved, and the country will progress toward a more prosperous future.
Like the general public, I hold hope and confidence in our country’s future. As long as the people avoid over-politicizing matters, I believe our nation will continue to move forward and grow stronger.
Translated from original article source:
