PUTRAJAYA (Aug 18): Malaysia is studying improvements to the existing sales and service tax, including whether it can incorporate elements of the goods and services tax.

The initiative is premised on the government’s aim to develop a taxation system that is more “progressive and efficient”, Prime Minister Datuk Seri Anwar Ibrahim said in his closing speech at the Budget 2027 engagement session on Tuesday.

Some adjustments to the current tax regime are necessary, he said, conceding that the goods and services tax, or GST, “which I have said in the 90s, is the most transparent and efficient system”.

Malaysia implemented the GST in 2015 at a 6% rate under the administration of Datuk Seri Najib Razak. The implementation led to soaring inflation and widespread complaints of slow tax refunds that created a cash crunch for small- to medium-sized businesses.

The tax was suspended on June 1, 2018 after Pakatan Harapan took over the federal government, and was subsequently abolished and replaced with the current sales and service tax, or SST, on Sept 1, 2018. Both the SST and GST are considered regressive, as lower-income households tend to spend a larger proportion of their income on consumption than higher-income households.

The government is not looking to bring back the GST, Anwar stressed, noting that its broad-based nature would affect even the poorest. The government is looking at whether the strengths of both taxation systems could be combined into a new model, he said.

“How can we combine both systems to find a new way in determining a tax system that is more progressive and more efficient?” he said. “How do I then propose a tax system where everyone pays, albeit at a low rate of taxation?”