GST still better in the long run, say economists

An economist says other measures such as a simpler and flatter income tax system must also be introduced. (Bernama pic)

PETALING JAYA: Economists have disagreed with a DAP man’s call for Putrajaya not to reimplement the Goods and Services Tax, which was done away by the Pakatan Harapan government, and argue that GST is better for the country in the long run and could play a key role in the current economic crisis.

Centre for Market Education Malaysia CEO Carmelo Ferlito said taxes on consumption would push people towards a saving-oriented mentality, adding that this was particularly necessary since household debt in Malaysia was among the highest in the world.

“As a consequence, additional savings will become the necessary financing fund for new investments, which are key for economic recovery,” he told FMT.

While there were complaints that GST could be regressive by being more burdensome on lower-income citizens, he said a more targeted system could rectify the problem.

Carmelo Ferlito.

He said basic goods regularly consumed by the lower-income group, such as rice, could be exempted from GST, while luxury goods associated with higher-income households are charged 10%.

Meanwhile, key-development items such as culture and education-related goods can be charged a lower rate of 3%, while other goods not identified under any of the three categories are charged a “middle” rate of 6%.

“Obviously, consumption tax alone cannot make any miracle. The reintroduction of GST, to avoid frustrating a recovery, needs to be accompanied by other fiscal measures such as a simpler and flatter income tax,” he said.

Last week Liew Chin Tong had urged Putrajaya to put rumours about a reintroduction of GST to rest by denying any moves to bring it back, saying the tax system was a cause of the fall of Barisan Nasional at the 2018 general election. He said low and middle-income families would have to pay more than those with higher incomes.

Barjoyai Bardai.

However, Barjoyai Bardai of Universiti Tun Abdul Razak said GST was good for the whole economy as it was broad and efficient. He added that Putrajaya might consider reintroducing it as it needs revenue.

“On paper, it seems regressive for the lower-income group, but so is the income tax. We have a single corporate tax system which allows shareholders to avoid tax because the tax is imposed at the corporate level, and profit margins include tax paid.

“Shareholders of most public-listed companies are not experiencing tax from that shareholding, When they sell shares there is also no tax because that is capital gain,” he told FMT.

While there were pros and cons to reimplementing it, he said the current sales and services tax (SST) could be slowly tweaked to include elements of GST so that it was not so direct.

Should the GST be reintroduced, Ferlito suggested for the tax to be collected by states, retaining 20% of collections then transferring the remaining 80% to the federal government.

“This can be used to test the possibility for a higher degree of tax devolution, with local states more involved in tax collection so they may have direct access to funds that can be used to support the territory,” he said.

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