Malaysia yesterday implemented a 6 percent consumption tax aimed at plugging a leaky tax system and addressing a widening fiscal deficit that has sparked opposition protests over the past year.
The Malaysian government and economists say the goods and services tax (GST) will help address an inadequate revenue-collection system under which income tax is currently paid by only an estimated 11 percent of registered companies and 14.8 percent of employees.
However, the tax has prompted demonstrations by opposition parties, who say consumers are being left with the bill for government’s mismanagement of the economy.
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Malaysian Prime Minister Najib Razak on Monday said the GST — which does not apply to staple food items such as rice, sugar and cooking oil, as well as some medicines — would not overburden consumers.
“At the same time, we will raise the nation’s revenue, and this is for the people’s good,” he was quoted as saying by Malaysian media outlets.
The government said the GST would raise an estimated 22 billion ringgit (US$5.96 billion) in additional revenue each year.
It hopes to trim its fiscal deficit to 3.2 percent of GDP this year, compared with 3.5 percent last year, officials have said. An earlier target of 3 percent for this year was scrapped in the wake of the global oil price rout that set in last year.
In concert with the GST, corporate, business and personal income tax rates are to be slightly reduced.
Malaysia is a net oil exporter, and a 60 percent drop in crude prices in the latter half of last year prompted the World Bank in January to cut its GDP growth forecast for Malaysia this year to 4.7 percent from an earlier 4.9 percent.
The ringgit has also plummeted on oil-linked concerns, as well as investor fears for the stability of a troubled government investment fund, 1Malaysia Development Bhd, which is mired in US$11 billion of debt.
Kenanga Research economist Wan Suhaimi Saidi said the GST would broaden the tax base.
“However, whether it would help to reduce the deficit depends on many other factors, especially on how the government would tackle leakages,” he said.
Opponents say billions of dollars are wasted by the government or go missing each year and that deep reforms are needed before introducing the sales tax.
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