Zero GST come June 1, but will new tax system be in place by then?

PETALING JAYA: Come June 1, the government will stop collecting Goods and Services Tax (GST) – making good on a campaign promise by the Pakatan Harapan government – but the Finance Ministry in its announcement today was silent on whether a new system would be implemented by then.
According to Thannees Tax Consulting Services managing director S.M. Thanneermalai, a new tax system would need a minimum of three months for it to be effective, even if it goes back to the previously used Sales and Service Tax (SST).
He believes that plugging leakages in government would go a long way in providing revenue to the government in the interim period.
The Finance Ministry said in a statement today all goods and services currently taxed at a 6% rate will be zero rated, enabling the new government to circumvent the need to wait for a drawn-out process of passing new legislation to do away with GST.
While this accords the government some leeway for it to come up with another form of indirect tax on consumers, market observers believe that a replacement will be needed as soon as possible in order to minimise loss of revenue on the government’s part.
Without a new tax system by June 1, the government will lose an important source of revenue. GST brought in RM44 billion for the government in 2017.
Baker Tilly Malaysia tax leader Anand Chelliah opined that the government wants to let the GST system wash out of the economy first.
“This is a transition period. The first step is to make it zero per cent, next is repealing of the (GST) Act, then they bring in the new Act (SST).”
Anand said until the government is satisfied that the GST is washed out from the system, maybe in July to September, when it is ready to repeal the GST Act and abolish it, then by that time the government might be ready to implement SST.
“By zero rating GST, the country tends to lose a lot of tax collection. It’s question of whether they feel they need to set an alternative consumption tax like SST to defray the loss from GST. If they’re in a hurry, they will bring it in sooner, maybe July or August. They need to draft the new legislation for SST.”
Anand said the country used to have the Sales Tax Act and the Service Tax Act so there is a framework for the new government to work on.
“If they want to use a similar type of system, then it is not so difficult and they can make a few amendments, redating it and passing it through Parliament. If they want to make a big change, it will take longer.”
Malaysian Institute of Economic Research executive director Dr Zakariah Abdul Rashid told SunBiz that there must be one form or another of indirect tax, either GST or SST, otherwise the government will not be able to collect any revenue from indirect tax. Indirect tax is an instrument to stabilise the economy.
“My view is last time when SST was implemented, our GDP was lower. That means SST will not be able to generate enough public sector revenue compared to GST, which is much more efficient in collecting public sector revenue," Zakaria said, adding that the government should use the GST experience to formulate a better tax system than the old SST.
He is positive on the government's ability to get some extra revenue with improved efficiency in government expenditure.
" Any form of corruption or leakages will be minimised. Public sector expenditure will be much more efficient and the government can save a lot of money from more prudent expenditure monitoring; therefore, efficient expenditure monitoring is a good source of revenue," he said.