KUALA LUMPUR: Malaysia said on Thursday (May 17) it will introduce a sales and service tax to partly offset the shortfall in revenue from effectively scrapping a goods and service tax (GST) from June.
The Mahathir Mohamad-led government, which won last week’s general election, said on Wednesday it would lower GST to zero per cent from Jun 1. Ousted leader Najib Razak had introduced the tax in 2015 amid lower oil prices.
In a statement on Thursday, the ministry of finance said the shortfall in revenue will be supported by specific revenue and expenditure measures that will be announced soon, including the reintroduction of the sales and services tax (SST).
“Expenditure reduction will begin with rationalisation, efficiency measures and reduction in wastages. Of significance, oil prices have been higher than the US$52 per barrel estimated for Budget 2018. This provides fiscal buffers for the immediate future.
“Fiscal responsibility, transparency and governance will be a paramount consideration in rolling-out the fiscal reform,” the MoF said.
It did not say when the sales tax will be introduced.
Brian Tan, a Singapore-based economist with Nomura, said the timing of SST implementation was a concern.
“It is a question of how quickly you can bring (the SST) back. In the intervening period of the removal of GST and the return of SST, there is obviously going to be a gap in revenue. The question is how long and large will that gap be,” he said.
The finance ministry statement also added that rising oil prices will provide short-term fiscal space.
“Of significance, oil prices have been higher than the US$52 per barrel estimated for Budget 2018,” it said.
The sales and service taxes, were introduced on Feb 29, 1972, and Mar 1, 1975 respectively, according to the Royal Malaysian Customs Department.
An infographic that illustrates how Malaysia's sales tax works. (Graphic: Royal Malaysian Customs Department
An infographic that illustrates how Malaysia's service tax works. (Graphic: Royal Malaysian Customs Department)