PETALING JAYA: The goods and services tax (GST) will ultimately need to be reintroduced to boost Malaysia’s revenue, even if tax administration is made more efficient and tax avoidance reduced, says an economist.
Sunway University professor of economics Yeah Kim Leng said GST was a “more efficient and broad-based” tax system, while the current taxation model was unsustainable.
“This broadening of the tax base, with a stronger focus on consumption over income tax and combined with increased government spending efficiency, will put in place a growth-based taxation system,” said Yeah, who is a member of an advisory body to finance minister Anwar Ibrahim.
Yeah told FMT that the revenue generated through Malaysia’s current taxation system was insufficient to keep up with government spending.
He said increased government expenditure was forecast on health, education and social protection to care for the ageing population.
“Therefore, the current tax system needs urgent recalibration,” Yeah said.
On Thursday, former second finance minister Johari Ghani said the existing taxation model could result in “uncontrollable debt” if mitigation measures were not implemented.
He said neighbouring Asean countries had a higher percentage of tax collected compared to their gross domestic product on average.
In February, economy minister Rafizi Ramli acknowledged that the government may implement the GST “when the time is right”.
The tax was abolished in 2018 by the Pakatan Harapan government three years after it was introduced at a 6% rate.
Bait Al-Amanah research director Benedict Weerasena also proposed reintroducing the GST, albeit with a more targeted and progressive mechanism such as exemptions for all basic necessities and other cash transfers..
“There is also a need to consider reducing income tax rates slightly, to provide some relief from the new tax on consumption,” Weerasena said.
He added that introducing a progressive capital gains tax was crucial to raising tax revenue, pointing out that Malaysia was one of the few remaining countries in the region without such a tax.