KUALA LUMPUR: The shift in taxation in 2018 left many perplexed when the Goods and Services Tax (GST) was abolished by the Pakatan Harapan (PH) government who took power upon winning the 14th General Election on May 9, to be replaced by the Sales and Services Tax (SST) in September.
Though the GST was a good tax, its abolition was part of PH’s election manifesto which had to be fulfilled.
However, the SST itself had served the country well prior to the implementation of the GST on April 1, 2015, and as former Finance Minister Tun Daim Zainuddin put it, “we have done it before, (for) 57 years there was no GST, there was no problem”.
In between the transition between the two taxes during the year, the government announced a three-month tax break which has directly boosted consumer spending.
With the SST, the government is to collect less revenue compared to the GST as the tax covers only 38% of the items in the Consumer Price Index compared to 60% under the GST system.
But the GST was not without its problems.
GST collection stood at RM27 billion in 2015, RM41.2 billion in 2016 and RM44.35 billion in 2017, but as of May 31, 2018, there were shortages to pay back RM19.4 billion in GST refunds.
This “missing fund” led to a probe by the Public Accounts Committee (PAC) and the findings are expected to be tabled during the March parliament sitting next year.
Finance Minister Lim Guan Eng said the government is committed to returning the GST refunds beginning next year.
Meanwhile, the government will encounter about RM21 billion shortfall in revenue from the shift in taxes this year as tax revenue for 2018 is expected at RM23.1 billion as against the RM44.35 billion collected in 2017.
As revenue from the SST for the period from September to December this year is estimated at RM4 billion, the net impact, therefore, is RM17 billion for 2018, Lim was reported as saying
To cover the shortfall, Lim announced that the government would set off RM10.4 billion of the RM17 billion in lost tax revenue through additional oil revenue and dividends from government-linked companies (GLCs).
The additional dividends from GLCs, including Petronas and Khazanah Nasional Bhd, are projected to be RM5 billion.
These measures taken will only be able to sustain for a short period and the government needs to find other alternatives.
In 2019, the tax revenue from the SST is estimated at RM22 billion.
Meanwhile, non-tax revenue contributed RM42 billion in 2017 and this is expected to rise to RM61.76 billion in 2018 and RM85.66 billion in 2019.
Non-tax revenue is obtained by the government from dividends and profits from profit-making government entities.
In order to ensure the stability of its coffers, the government in the 2019 Budget announced the introduction of excise duty for sugary drinks at 40 sen per litre on two categories of sugary drinks manufactured in the form of ready-to-drink packaging starting April 1, 2019.
The government has also proposed to increase the Real Property Gains Tax (RPGT) for properties to be disposed of in the sixth year to 10% for foreigners and companies and five per cent for Malaysian individuals, as well as impose a service tax on digital platforms, starting Jan 1, 2020.
In the long run, Axcelasia Taxand Chairman Dr Veerinderjeet Singh said, the government through the Inland Revenue Board (IRB) and Royal Malaysian Customs Department (RMCD) would need to figure out ways to enhance tax contribution to the gross domestic product ratio.
He pointed out the four components that could help maximise revenue collection.
“Firstly is to tap into the underground economy, which is defined as unreported income from self-employment and such.
“The others include under-reporting to IRB, reduce tax leakages, enhance tax administration as well as find new sources of revenue,“ he told Bernama.
Under the current guidelines, Veerinderjeet said what is taxable is steady income such as salary, but in future the IRB would need to also look into passive incomes and scrutinise unexplained extraordinary wealth.
“Currently, only 15% of individuals pay income tax and only 20% of companies (Sdn Bhd) pay taxes.
“If the wages continue to rise higher, the net for income tax will be bigger and the tax rate can be reduced,“ he said.
He also said that currently the SST only covers 38% of the CPI against GST’s 60% and over time, the government needs to widen the tax base.
“It is also natural for the percentage (6% for service tax, 5% to 10% for sales tax) to go up over time but it is also important for the wages to go up as well to support it,“ he said.
Veerinderjeet added that sustainable tax revenue could ensure a positive credit rating and once the tax collection from SST increases, corporate tax and income tax can be reduced.
“This will attract more foreign direct investments as well as facilitate better growth of the economy.
“In my opinion, I do not see the need for the government to introduce new taxes.
“All they need to do is to plug the leakages and give incentives to industries that guarantee a return on investment,“ he said. — Bernama