The Untimely Demise of the Goods and Services Tax (GST) in Malaysia: A Postmortem and the Way Forward

Abstract

We discuss the reasons for the introduction of the Goods and Services Tax (GST) in Malaysia, its subsequent abolition, and the factors to consider if it is to be reinstated. The GST was implemented hastily to rein in mounting government deficits and debt. The lack of preparation to address its impact on the general price level, and incomes of poorer households in an economy already predisposed to inflation, led to widespread public discontent. The high compliance costs borne by smaller firms, delays in providing tax refunds to businesses, and the wasteful use of the additional revenues the tax generated strengthened the anti-GST sentiment. Any attempt to bring back the GST must focus on gaining acceptance rather than the revenue it generates. This is best achieved by timing its reintroduction correctly, keeping the rate low, the base broad, and implementing parallel measures to supplement the incomes of households seriously undermined by the tax on the consumption side. Additionally, addressing leakages, waste, and corruption in the public sector will strengthen public acceptance of the tax and instill confidence in public sector fiscal management.