THE Federation of Malaysian Manufacturers (FMM) welcomed Putrajaya’s call to reintroduce the goods and services tax (GST), and suggested a rate of 4%. 

Its president Soh Thian Lai said it supports the consumption tax at a rate that would not burden the rakyat but still help widen the country’s revenue base in order to lower the government debt ratio and accelerate the pace of fiscal consolidation. 

“FMM is of the opinion that the GST is a more transparent and effective tax regime compared to the sales and services tax (SST),” he said. 

“Based on a survey carried out by FMM on the reintroduction of GST in May 2020, a total of 499 companies that responded to the survey strongly supported GST to replace the current SST 2.0 as GST provides a fairer tax structure and it eliminates cascading and compounding of taxes commonly found in the SST regime,” he said in a statement. 

In addition, Soh said the prices of Malaysian exports will become more competitive on the global stage as no GST is imposed on exported goods and services, while GST incurred on inputs can be recovered along with the supply chain. 

Moreover, he said because this broad tax base system would increase indirect taxes, it will give flexibility to the government to reduce direct taxes – personal income tax and corporate tax – to make Malaysia a more attractive business destination. 

FMM also suggested eight improvements to the GST including reducing the GST rate to 4%, gradually bring down corporate tax to 20%, zero-rate all essential goods and services as well as maintain GST registration threshold at RM500,000. 

Other suggestions were to minimise delay in refunds especially for exporters and businesses with zero-rate supplies as the long refund period between six and eight months has rendered the GST into an accumulating tax burden. 

“Include the provision of interest on late payments and refunds in the GST legislation to ensure strict compliance with the client charter and integrity of the system,” he said. 

He said the government must also ensure a proper mechanism is in place to monitor price control and anti-profiteering in the market when the tax system is reintroduced. 

Soh said nevertheless, bearing in mind that Putrajaya’s focus now is the revival of the economy and manufacturers will now need to prioritise their time and energy on rebuilding their business.

He said the reintroduction of the GST should not be considered in isolation but as a part of the holistic assessment of Malaysia’s tax systems and the country’s fiscal position. 

“While the introduction of a broad-based consumption tax would strengthen the country’s fiscal position, GST 2.0 must be easy to manage and also not increase the cost of doing business. 

“As the change and transition to GST 2.0 can be challenging, FMM calls on the government to consult all stakeholders for a thorough review process to ensure the success of introducing an effective tax regime.” 

On Tuesday, Prime Minister Ismail Sabri Yaakob told Nikkei in an interview that his government was considering bringing back the GST. 

The GST was implemented by the Barisan Nasional government in 2015, but it was repealed three years later by the administration of then-prime minister Dr Mahathir Mohamad after voters slammed the 6% consumption tax for rising costs. 

Ismail said the government is aware of the GST’s unpopularity but is constrained in its options, noting that after the tax was repealed, the government lost RM20 billion in annual revenue. – June 2, 2022.