Monday, April 5, 2010

Malaysia's PM reiterates country's need for GST

Huey Fern Tay, AUST Newsline
Thu, 1 Apr 2010 
Malaysia's Prime Minister, Najib Razak has reiterated the need for the country to have a goods and services tax.

The suggestion came after his announcement of a significant economic reform package.

In it, Mr Najib also promised to revise the country's affirmative action policy, to a system based on needs and merit.

Malaysia is planning to introduce a tax on consumer goods and services to replace an existing Sales and Services tax that is higher but not as broad.

At four percent, Malaysia's proposed goods and services tax (GST) is relatively low.

Basic foods like rice and vegetables and some essential services like public transport are exempt from the tax.

The tax would help wean Malaysia off its heavy dependence on oil and gas which currently account for around 40 percent of the country's revenue.

But gas is expected to run out in 7 years and Malaysia expects to become a net importer of oil even sooner.

If implemented the country would stand to earn around 1 billion Ringgit in the first year alone and could become a stable source of income for Malaysia in the future.

Nur Jazlan Mohamed, a MP from the ruling UMNO party, says he thinks Malaysia is ready for the GST.

"We are an economy which is already at a developed stage and we are also quite integrated into the global system therefore the GST will actually help to improve the efficiency of the economy and also to help improve our export market."


Malaysians had been bracing themselves for the GST to be introduced as soon as next year.

But in a surprise move, the government announced the bill would be postponed.

Khairy Jamaluddin, UMNO Youth Chief, says he thinks the government delayed the GST so it would have more time to explain the tax.

"The communications strategy has been slow and not effective enough in getting the correct information out to the public as to the implications of the GST," he said.

"Secondly I think it's also to look at teething problems that will come with implementation."


But so far there has been fierce opposition to the proposed tax.

Tony Pua, a opposition MP, is the face of the anti-GST movement.

He says the GST is a new tax which will plug gaps in the government's budget.

"We believe the GST will come back, there's no question about it. This government is short of funds."

"The 217 billion worth of Petronas contribution from 2004 to 2009 has been fretted away. Not only have they been fretted away, loans were taken on top of those income because we were running deficits on top of those high income levels during those years," he said.

"As a result, the government is now strapped in part because of declining oil prices which has halved its peak in 2009 and as a result, the government needs to find ways to plug the gap and one of the quickest ways for them to do that is to raise new taxes."

For the past month, Mr Pua and his counterparts have been online and on the road aggressively selling its message to as many people as they can reach.

They argue Malaysia needs to become a "high income" nation first before the GST is introduced.

85 percent of Malaysians currently don't earn enough to pay income tax - a tax on consumer goods will hit them hardest.

The opposition says if generating revenue is one reason, the country's priority should be to stem corruption.

But Nur Jazlan Mohamed, says the opposition is scaremongering.

"I think another lie that has been purported by the opposition is that the GST will be burdensome on the people, on the lower income people. It won't because the GST in Malaysia will be implemented on a narrow base."

However there was not much support for the GST among average Malaysians when the ABC went to streets of Kuala Lumpur.

One small business owner said he was concerned it would make things more expensive and the purchasing power of the consumer would be lower.

GST comeback?

The question now is whether the GST will make a comeback and if so, when.

This is not the first time the government has tried to introduce it. The policy is one of a few economic proposals that have been delayed.

UMNO politicians deny it is because the party is insecure about its support among voters, especially with rumours that elections may be held in the first half of next year.

The controversy surrounding the GST has also raised questions about whether the Prime Minister will be able to carry out other parts of his reform plan.

Prime Minister, Najib Razak could face a difficult time dismantling an affirmative action policy that was put in place by the his decades ago.

There are mixed hopes over Mr Najib's upcoming reform plan called the 'New Economic Model'.

Tony Pua, an opposition MP, says he has concerns about whether the PM can implement his economic reforms.

"The PM is facing a lot of pressure from the far right Malay NGO groups and I fear for the New Economic Model,"

"I actually fear for the Prime Minister because he has actually delayed the announcement of the New Economic Model at least 3 times so far."

But Khairy Jamaluddin, UMNO Youth Chief is more positive.

"I can only speak for myself but I get the sense that the party understands that going forward in trying to make Malaysia a high income country, we have to get rid of some of these distortions to the market."

The reform plan will be announced in full by June.