As Malaysia’s new sales and services tax comes into force, Errol Oh looks back at the short and unpopular tenure of its predecessor, the goods and services tax
This article was first published in the October 2018 China edition of Accounting and Business magazine.
My first article for this magazine appeared in January 2010 and focused on the strong likelihood that the goods and services tax (GST) would finally be introduced in Malaysia. At the time, the idea of a consumption tax had been floating around for two decades and there had been at least a couple of false starts. But by late 2009, the resolve had hardened and implementation seemed imminent.
I wrote that the government would probably start collecting GST in early 2013. As it turned out, not everybody was ready; it was only in April 2015 that the new law came into force.
That law is now gone. The Goods and Services Tax Act was repealed on 28 August, thus abolishing a system that had been suspended three months earlier with the reduction of the 6% standard tax rate to zero, and the sales and services tax has been reintroduced.
Malaysia’s experience with GST is yet another cautionary case study on how a promising fiscal policy tool instead becomes a lightning rod for discontent and distrust.
There were compelling reasons for Malaysia to have GST. The World Bank and the International Monetary Fund had long advocated such a move, saying the government needed to widen its revenue base. Also, GST was regarded as a more effective, efficient, transparent and business-friendly tax system than the previous regime.
Unfortunately, what looks great on paper can transform into something far less so when launched in the real world, especially when there is a perfect storm of negative developments.
After April 2015, people began complaining that the cost of living was rising much faster than their incomes. Already smarting from soaring property prices, the weaker ringgit and a subsidy rationalisation programme, many Malaysians felt increasingly boxed in and pessimistic.
The experts disagree on whether GST was indeed inflationary and regressive. Some blame the opportunism of businesspeople, weak enforcement and administration, and just plain bad timing. Whatever the views, they mean little to those who had to deal with shrinking purchasing power; the bottom line was that GST was hugely unpopular.
In April 2015, my column was again on GST. I pointed out that accountants and accounting bodies were in a position to help smooth the transition. There is no doubt that such expertise was called upon numerous times. However, technical knowledge and a legal framework are by no means the only factors that can ensure the successful rollout of a far-reaching tax like GST.Steady management of perception, robust yet sensitive engagement with stakeholders, and a holistic approach in addressing and explaining the effects could have made a difference in how people felt about the tax.
Perhaps the average Malaysian is now more than happy to forget GST but the episode has given the country an important lesson that ought to stick in our minds: when it comes to taxes, strong and empathetic leadership has to be part of the equation.
Errol Oh is executive editor of The Star
"What looks great on paper can transform into something far less so when launched in the real world"