PETALING JAYA: Former prime minister Najib Razak has summarised the four “blows” Malaysia will suffer once the goods and services tax (GST) that he introduced in 2015 is abolished.
In a Facebook post, the former finance minister said firstly, Malaysia would lose its economic advantage, catalyst for growth and competitiveness made possible by the GST.
“The problems and weaknesses of the old economic structure, such as high corporate taxes, tax evasion and outflow of illicit funds, will return,” he said.
Najib said with the GST, the Barisan Nasional-led government reduced income and corporate taxes which were important as neighbouring countries were doing the same to attract investments.
He noted that Thailand reduced corporate taxes from 30% to 20% from 2011 to 2013, while Indonesia had announced its intention to lower corporate taxes to 17% to match that of Singapore’s.
The United States, said Najib, lowered its corporate tax from 35% to 21% starting Jan 1 this year.
“If our income and corporate taxes are high, while other countries’ taxes are low, there is no reason for foreign and local investors to invest here and they would be more interested in investing in other countries.”
He said that without the GST, the country no longer had the ability to lower income or corporate taxes. This would affect the country’s competitiveness as a business and investment destination.
Secondly, Najib said, Malaysia would lose the ability to face a recession or a tremendous or sudden drop in commodity prices, without experiencing an economic crisis, because it would no longer have the GST to act as a buffer in such situations.
Thirdly, Najib said, doing away with the GST would lead to Putrajaya losing the ability to continue to help those in need like before, like offering the 1Malaysia People’s Aid (BR1M) and allowances to fishermen or Felda settlers.
“Lastly, prices didn’t drop after GST was zero-rated. That means the people will be burdened with higher prices once the sales and services tax (SST) is introduced.
“These are the four great blows the country will experience.”
Najib also said that in the short run, the government could use Bank Negara Malaysia, Khazanah Nasional and Petronas’ reserves to make up for the shortfall from abolishing GST, but this wasn’t sustainable in the long haul.
“The effects of this populist move to abolish the GST will take the country backward in the world stage. The full effects will be felt in the future, not now.”
He said this will be reflected in the country’s growth, job opportunities and ability to withstand a recession or economic shocks.
“I am no longer in a position to stop the government from taking a step backward by replacing the GST with the SST but I want them to realise the impact the country and its people will feel in years to come.”