BRINGING back the goods and services tax (GST) is risky at a time when the economy is facing multiple challenges, and any decision to do so must thoroughly weigh its pros and cons.

On the plus side, the proposal could increase revenue for the government when it receives less income due to the plunge in world oil prices.

On the negative side, the GST could further dampen consumer sentiment when the local economy can’t afford a further slowdown in consumer spending.

Prime Minister Muhyiddin Yassin said the new government will consider various measures to boost the economy, including reviving the GST.

The unpopular tax, which levied 6% on everything except a limited list of food and services, was started in 2014 by the Najib Razak administration.

The then government was heavily criticised over the tax and the delayed payments of refunds.

At its height, the Najib administration collected RM44 billion from the GST.

The Pakatan Harapan administration abolished the tax and replaced it with the sales and services tax (SST).

In comparison to the GST, the SST, which is only levied at the producer level, only collected RM27.5 billion in 2019.

Politicians and pundits have floated the idea of bringing back the GST, some at a reduced rate of 3-4%, to increase government revenue.

This is since Budget 2020 was planned based on world oil prices averaging US$63 (RM267) per barrel, but as of yesterday, prices have crashed to US$27 due to a price war between producer countries Saudi Arabia and Russia.

The Covid-19 outbreak has also slashed demand for oil in China as businesses and factories shuttered to curb its spread.

Being fiscally tenable

Economist Lee Heng Guie told The Malaysian Insight the GST could come in handy for the government as revenue falls due to the oil price plunge but this will depend on the rate of the tax.

“Setting it at 4% or lower would be revenue-neutral and fiscally untenable,” said Lee of the Socio-Economic Research Centre (SERC).

“At 2-3% also, you won’t get anything more so you might as well not do it,” said Lee, adding that it will increase inflation.

At 4%, the amount of tax the GST would collect will be roughly the same as the current SST system, which is set at 6%.

Another economist, Yeah Kim Leng, however, said the government should only consider reviving the GST once the economy calms down.

“The GST will increase the tax burden on consumers at a time when we need them to spend. So, I think it is better to wait,” said Yeah of Sunway University.

“In fact, the government’s stimulus package is aimed at putting more money in the hands of consumers so that they will spend. Bringing back the GST will have the opposite effect,” said Yeah.

Lee of SERC said consumer sentiments need not dampen if the GST expands its list of zero-rated goods and services to minimise its impact on the bottom 40% of households.

“The list of essential services and goods can be expanded and we can also raise the threshold ceiling for SMEs so that more of them don’t have to charge,” said Lee.

During the GST regime, businesses earning more than RM500,000 per year had to pay the tax.

Lee argued that the shock to consumers can be minimised even if the tax is introduced during today’s challenging environment.

“If we wait till the economy stabilises and we revive the GST, we still see a big price hike,” Lee said.

“But if we do it now, oil prices are low and when demand slows, prices for other goods and services will also be low.

“The government might get more revenue but at the same time, enforcement is also key so that people don’t take advantage of it.” – March 12, 2020.