Abolish GST – more money in our pockets

“IT’S a cancellation. We don’t need it (Goods and Services Tax). We go back to the Sales and Service Tax (SST) for the moment,” said Malaysia’s newly sworn in prime minister, Tun Dr Mahathir Mohamad.

Impact on the Rakyat – more money for the Rakyat

In 2016, the government collected GST of RM41.2 billion versus SST of RM17 billion in 2014. Upon abolishing GST, the difference of RM24 billion will flow back into the pockets of the Rakyat, who will have the choice whether to spend or to save this benefit.

With the migration back to SST from GST, there will be fewer goods and services that will be subjected to SST compared to GST.

Impact on different sections of society

The biggest beneficiaries from cancelling GST will be the middle class as they are consuming goods and services subjected to GST.

The poor were not impacted by GST due the zero rating and exemption of many essentials. The wealthy and the high income earners were not impacted by the GST since it represented only a small portion of the disposable income.

Removing GST will benefit everyone and it is likely that a substantial part of the GST saved will flow back into the economy from the poor and the middle class as they under pressure from the cost of living increases due to increases in petrol price, ringgit depreciation, mortgage payments etc. The savings will also allow the middle class to reduce their borrowings.

All round, more money in the hands of the Rakyat will benefit the Malaysian economy

What about the shortfall in government revenue – approximately RM20 billion?

The shortfall for 2018 may not be RM20 billion as the GST is unlikely to be abolished for another three months, which will mean GST has to continue to be imposed at least until the end of August. Merdeka gift!

The reason for the three-month delay is because SST legislation has to be passed to bring it back and taxpayers need time to transition out of GST and into SST.

The shortfall in 2018 will be much smaller if SST is implemented from Aug 31, 2018 as there will only be four months left in the year.

Over the long run, the shortfall still has to be made up and the immediate actions could be: 1) reduce government expenditure – cut down unnecessary travel, downgrading the class of travel, smaller offices, fewer official functions, etc; 2) reduce leakages through transparency in

the awarding of contracts; 3) renegotiating ongoing government

contracts to locate savings; 4) reviewing or delaying infrastructure projects that will not be economically viable with little social benefit; 5) redeploying existing civil staff to where they are needed rather than adding more staff. The recent increase in oil prices will help buffer the shortfall. The alternative is to review the old SST regime and to consider widening the goods and services that could be subject to service tax which will not impact the poor or the middle classes. It is also necessary to review the 10 % sales tax rate and to consider reducing it to, say, 5% to 6%.

Transitional headaches to businesses

Being the first in the world to introduce and thereafter remove GST, we have no precedence to guide us.

The issues that need to be addressed urgently are: 1) the date of the GST shutdown; 2) how to deal with ongoing contracts that

straddle the cut-off date; 3) will the GST-inclusive contracts be

automatically modified to remove the GST

element; 4) will GST paid for long-term commitments in advance be refunded for the portion relating to the post-GST period; 5) will GST paid on stocks at cut-off date be

refunded by government; 6) GST refunds yet to paid back to taxpayers

– when will they be refunded; 7) ongoing GST disputes – what will happen to them . There are many issues involving computer systems: the software will need to be modified or new software will have to be purchased and documents such as invoices will need to redesigned and staff need to be retrained to comply with SST requirements. Compliance costs initially will increase.

If these matters are not addressed quickly, it will affect the economy as removal of GST and introduction of SST have a direct impact on businesses. They need to know how to migrate from GST to SST. Certainty and clarity are needed for commerce to move on. Businesses do not want the authorities to make the rules as they move along.

Discussions are needed with relevant stakeholders and professionals so that the migration takes place smoothly with little negative impact on the economy.

Final suggestion

There will be cost of migration from GST to SST. The government should consider subsidising or incentivising businesses to cushion them from the extra cost of migration. Secondly, the investment in the GST systems will have to be written off and the government should consider a full income tax deduction for such write-off.

Immediate consultations between the authorities and the various stakeholders and professionals will lead towards a smooth migration from GST to SST.

Malaysia Boleh!

SM Thanneermalai is the managing director of Thannees Tax Consulting Services Sdn Bhd and chairman of the board of trustees of the Malaysian Tax Research Foundation.