KUALA LUMPUR (Nov 6): The reintroduction of the goods and services tax (GST) system would take too long to implement and would not provide the necessary revenue within the desired timeframe to achieve the government’s fiscal targets, said Finance Minister II Datuk Seri Amir Hamzah Azizan.
Amir said the government decided to expand the scope of the existing Sales and Service Tax (SST), as it would allow for quicker institutionalisation compared to the lengthy process of rolling out the GST, which he said could take 14- to 18 months to implement.
“We need to instill fiscal reform in the country and I need to do it within a short duration of time, because we have a commitment under the Fiscal Responsibility Act,” he said during a dialogue session at the ESG and Sustainability Conference 2024, organised by CGS International Securities Malaysia.
“Our current take is that to introduce the GST system, it will take us within 14- to 18 months. So for 14- to 18 months, I don’t have any additional income. I needed to do a balancing act of actually finding revenue when we’re critical to find revenue, without distorting”.
Under the Fiscal Responsibility Act, the government targets to reduce the fiscal deficit as a percentage of gross domestic product (GDP) to below 3% by 2028. The government achieved a fiscal deficit of 5% of GDP in 2023, down from 5.6% in 2022. This is set to be reduced further to an estimated 4.3% in 2024, and 3.8% in 2025.
Starting May 1, 2025, SST will be imposed on non-essential items, including imported premium items such as salmon and avocado, following an expanded scope of the tax announced in Budget 2025 last month, as the government seeks to raise tax revenue.
On the same date, fee-based financial services will be included under the service tax’s scope of coverable services.
However, the government has yet to finalise the full scope of the expansion and the tax rates to be imposed.
Amir also noted that a broad tax like GST could disproportionately impact lower-income groups. The government is focusing on increasing wealth creation and lifting wages to address the people’s affordability, before considering reintroducing GST, he said.
“While GST is a stronger tax system, its net effect could be worse for those at the bottom, compared to a more progressive mechanism,” he said.
“So, that’s the thought pattern we have to put in place. The government is about practical considerations that we can put through and finding that balance. I think that’s what we’ve achieved by focusing on extending the SST, as opposed to reintroducing the GST,” Amir added.