CRUCIAL elements in reintroducing the Goods and Services Tax (GST) are a lower rate and improvements to the refund system for companies, business and employers’ groups said.

The consumption tax, introduced in 2015, was brought in too quickly, SME Association of Malaysia president Ding Hong Sing said, adding that the original 6% levy was too high. He said the new rate should be 4%.

Although it is uncertain when GST will be reintroduced, SMEs support a return of the tax but want it carried out the “correct way”, or the country will not benefit in the long term, he added.

Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) Koong Lin Loong, also agreed that GST should be reintroduced at between 3% and 4%, to regain consumer confidence.

“Many people misunderstand the consumption tax and blame it for increasing commodity prices,” Koong, who chairs the ACCCIM’s SME committee, said.

He said bringing back GST may cause “emotional inflation” or a negative reaction by consumers, but it would have minimal effect on prices if kept at a lower rate.

The ACCCIM previously suggested that the GST rate be set at 4% in the first year, 5% in the second year, and 6% in the third year. Corporate and personal income tax must be reduced.

“Currently, Indonesia’s corporate tax is 20%, Thailand is 20%, Singapore is 17%, and Malaysia is still 24%, which is not friendly to the business environment.”

Koong said reintroducing GST now that the economy is reopening following the worst of the Covid-19 pandemic will help increase national coffers and mitigate tax evasion.

In 2017, GST earned the government RM44 billion. Meanwhile, the Sales and Services Tax (SST) that was introduced by Pakatan Harapan in 2018 after it took over the government, collected far less at RM27.5 billion in 2019.

“The consumption tax is a fairer tax system for the people, and it is also good for businesses,” Koong said.

This is in reference to the GST refund mechanism to ensure businesses are not taxed twice on goods and inputs along the supply chain.

Koong said SMEs found the GST refund system was better than that of the SST.

“The GST is not a double taxation system, because enterprises and merchants can claim back the consumption tax paid when purchasing, that is, the input tax credit.”

Many companies and businesses were used to the GST and its system to claim input tax credit after two years, until the PH government scrapped it and replaced it with the SST, Koong added.

Ding also said that GST allowed businesses to be more competitive, stressing that not being double taxed was a major advantage.

However, this refund mechanism needs improvement and the government must ensure this before bringing back GST, the SME association heads said.

Previously, companies suffered cash flow issues due to delays in refunds, which were handled by the Customs Department in the Finance Ministry.

Besides the SME Association of Malaysia and the ACCCIM, the Employers Federation (MEF) also wants the government to resolve the refund mechanism issue.

MEF president Syed Hussain said amid hints by ministers that the GST will be brought back, the government must consult all stakeholders to ensure a smooth transition from SST.

“Companies need to make major adjustments to their accounting systems in order to return to GST, so the government should provide a buffer period of six to nine months.

“It must be easy for companies to manage and not increase business costs,” Syed Hussain said.

MEF also supports a GST rate lower than 6%, he added.

“The scope of basic commodities that are subject to zero GST must also be reviewed so as not to burden the people.

“GST can increase indirect taxes for the government and give the government flexibility to reduce direct taxes such as corporate tax and personal income tax, making Malaysia a more business-friendly environment.”

Finance Minister Tengku Zafrul Abdul Aziz has said the government is studying all tax systems, including GST.

He also said it will take about nine months after it is approved by lawmakers before it can be re-implemented. – June 10, 2022.