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Malaysia to Abolish GST Implementation from 1 June 2018

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Why remove GST? 

After the 2018 election, the newly elected Prime Minister Mahathir Mohamad intention to scrap a six per cent Goods and Services Tax (GST) within 100 days has economists and budget analysts on edge about the ripple effects.

When GST was first introduced on 1 April 2015 at a rate of 6%, it was used to resolve the country’s low inflation rate and weaknesses in the current taxation system such as the impact of double taxation. It would also mean that the Sales and Services Tax (SST) would be replaced by a single tax, GST.

Malaysia’s GST Implementation has been a huge challenge for entrepreneurs and business investors. Since its implementation, not only were many businesses hugely affected by it but some owners had to even close down their businesses.

Although GST had helped improve Malaysia’s annual revenue from RM 14 billion in 2015 to RM 25.97 billion in 2016, the common folks still suffered from the implications on the pricing of goods and raised living costs.

Hence, newly elected Prime Minister Mahathir Mohamad vowed during his campaign to get rid of the 6% GST to address the rising cost of living for common folks and huge financial burden for young entrepreneurs, upon winning the 2018 election.

Prime Minister Mahathir Mohamad

Prime Minister Mahathir Mohamad

How will removing GST affect Malaysia?

There are always two sides to a coin. However, the pros far outweigh cons in removing GST in Malaysia. Over the years, the implementation of GST has caused many upsets among the people, investors and businesses.

Now, with the removal of GST and the replacement with SST, it is expected to effectively resolve the financial situation and improve the economy in Malaysia.

The benefits of removing GST:

1) Decrease in Prices of Goods

Prices of goods are expected to drop, boosting consumer’s buying sentiment. Consumer’s have a higher purchasing power, encouraging them to shop more.

2) Better sales for businesses

With higher purchasing power of consumers, more sales will be made for businesses. This will improve the financial situation of businesses, and the overall economy of Malaysia.

3) Larger pool of customers for businesses

With prices of goods lowered, it will attract people from other countries to spend their money in Malaysia. For example, Singaporeans will now shop in Malaysia due to the reduction in prices, making goods cheaper. This will greatly improve the sales for businesses.

4) Businesses do not have to charge GST to customers.

5) Business owners do not have to go through the troublesome process of claiming back the amount paid in GST.

This process is often lengthy and troublesome. The omission of this process will make it more convenient and reduce time wastage for businesses.

6) Previous GST money collected will be pumped back to the economy.

Approximately RM 43 billion collected will be used for improving the economy, such as building more schools, infrastructure and improving education.

7) Foreign Investors will be attracted to Malaysia’s improved economy.

With the improvement in Malaysia’s economy, investors from other countries will want to invest in Malaysia’s market, bringing more financial diversity to Malaysia.

The disadvantages of removing GST:

1) Oil Revenue Share

With the omission of GST, the revenue expected to receive from SST will be lesser. This means that the government have to rely heavily on petroleum-related revenue to offset any loss from scraping GST. This also makes the budget more vulnerable to swings in oil prices.

2) Revenue Intake

It is estimated that implementing SST would only yield half of the revenue coming from GST. This means that the government have a reduced revenue intake, making it a challenge for the government to fill the hole that scrapping GST would leave.

3) Government Debt

Malaysia has a debt to GDP ratio of 50.8% and is set to remain elevated without a steady stream of cash from the Goods and Services Tax. With the Sales and Services Tax, the revenue made will not be able to effectively reduce the debt as compared to GST.

 

How will this affect Singapore? 

The new financial situation in Malaysia has allowed the economy to provide cheaper goods and less tax restrictions. Looking at a business’s perspective, this is great as cheaper goods will attract more customers and less tax restrictions would mean less expenses. Hence, any business will have improved sales and greater profits after the removal of GST.

There are many business opportunities for Singaporeans to grasp in Malaysia during this “Tax Holiday” period. This period is referred to as after the abolishment of Goods and Services Tax and before the implementation of Sales and Services Tax.

Singaporeans can make use of the increased in demand for goods and services to invest or set up retail businesses in Malaysia.