Malaysia launches unpopular consumption tax
Malaysia on Wednesday implemented a six-percent consumption tax aimed at plugging a leaky taxcollection system and addressing a widening fiscal deficit, but which has sparked opposition protests over the past year.
The government and economists say the Goods and Services Tax (GST) will help address an inadequate revenue-collection system under which income tax is currently paid by only an estimated 11 percent of registered companies and 14.8 percent of employees.
But the GST has prompted demonstrations by opposition parties, who say consumers were being left with the bill for government mis- management of the economy.
Prime Minister Najib Razak on Monday said the GST — which does not apply to staple food items such as rice, sugar and cooking oil, as well as some medicines — would not overburden consumers.
“At the same time, we will raise the nation’s revenue, and this is for the people’s good,” he was quoted as saying by Malaysian media.
The government says the GST will raise an estimated 22 billion ringgit (US$6 billion) in additional revenue each year.
It hopes to trim its fiscal deficit to 3.2 percent of GDP in 2015, compared to 3.5 percent last year. An earlier 2015 target of 3.0 per- cent was scrapped in the wake of the global oil price rout that set in last year.
Malaysia is a net oil exporter, and a 60 percent drop in crude prices in the latter half of 2014 prompted the World Bank in January to shave its 2015 GDP growth forecast for Malaysia to 4.7 percent from an earlier 4.9 percent.
The ringgit currency has also plummeted on oil-linked concerns, as well as investor fears for the stability of a troubled government investment fund, 1Malaysia Development Berhad (1MDB), which is mired in US$11 billion of debt.
Kenanga Research economist Wan Suhaimi Saidi said the GST would broaden the tax base.
(Right) Bernhard Maier, member of the Executive Board of Management of Porsche, sits in the new Porsche Boxster Spyder at the New York International Auto Show on Tuesday, March 31.