Malaysia scraps 6% consumption tax

kuala lumpur — Malaysia scrapped a 6 per cent rate on the goods and services tax, fulfilling a campaign promise by Prime Minister Mahathir Mohamad that gave him an unexpected win in last week’s election.

The tax rate will be set at 0 per cent from June 1, the Ministry of Finance said in an e-mailed statement. All businesses must comply with the ruling, it said.

Mahathir’s coalition pledged to replace the tax — which disgruntled voters blamed for their rising living costs since it was imposed in 2015 — with a more modest sales-and-services levy. Economists and credit ratings companies like Moody’s Investors Service have warned the move would cut government income and widen the budget deficit if not offset by other revenue-raising measures.

“It’s good and bad,” said Sanjay Mathur, an economist at Australia & New Zealand Banking Group Ltd in Singapore. “If it’s just the GST, of course, the budget deficit will widen. But I’m hopeful that they will take compensating measures that will ease the pain.”

The government earned 43.8 billion ringgit ($11 billion) in revenue from GST last year, or 18.3 per cent of tax income, making it the largest contributor after corporate tax receipts. That helped the ousted government of Najib Razak to steadily narrow the fiscal deficit over time to 3 per cent of gross domestic product last year.