SST-GST transition needs immense political will, proper timing: Isham

KUALA LUMPUR – Despite promising greater economic benefits, transitioning Malaysia’s consumption tax framework from the sales and services tax (SST) to the goods and services tax (GST) requires immense political will and proper timing, said newly appointed Umno Supreme Council member Isham Jalil.

Isham said now is not the right time to re-introduce the tax, as it would mean political suicide, especially with a looming general election. 

He added that when GST was implemented at a rate of 6% from 2015 to 2018, the government’s revenue from tax collection hovered over RM40 billion per year, compared with the income from SST, which was around RM20 billion.

“The timing of it is important as well, and I do not think any government looking to face a general election in the near future will announce the imposition of the GST.”

Isham shared a conversation he had during his time serving at the Prime Minister’s Office with then prime minister Datuk Seri Najib Razak over the political blowback from the introduction of GST. 

“He said ‘this is the right thing to do, and the right thing to do is always hard’, so introducing something like GST requires a lot of political will and political bravery. 

“Even Datuk Seri Anwar Ibrahim was thinking of introducing the GST when he was finance minister, but he did not have the political will.” 

Isham made these comments during the Should GST Return webinar organised by the Bait Al-Amanah research institute held virtually this morning. 

He also revealed that the government’s decision to introduce GST was spurred by the strengthening local economy and expanding gross domestic product, which in turn saw spending rates increase. 

He said reintroducing GST would not only increase the government’s tax revenue, but also elevate investors’ confidence in the country. 

“When there is a clear mechanism like the GST in place, it reduces the need for corporate or windfall taxes for businesses, which in turn will attract more to invest in the country.”

Also present during the webinar was Juita Mohamad, director of the economic and business unit at the Institute For Democracy and Economic Affairs, who said that policies on social safety nets must first be implemented before reintroducing GST. 

“There is no need to rush into it. Proper studies must be done to first examine the holistic effects it would have on the everyday household, and this takes time.”

She added that education and awareness on the tax method is also vital to ensure the right message gets across to those in urban and rural areas. 

Additionally, Bait Al-Amanah’s research director Benedict Weerasena suggested that if GST is to be reintroduced, it should be at a rate of around 3%, to create parity with the revenue rate of the current SST. 

“If it is introduced at 3%, the government will collect around RM20 billion as the SST, and then it can be increased incrementally over time according to the economic performance, and will shock the consumers.”

Earlier this month, Prime Minister Datuk Seri Ismail Sabri revealed the government was studying the reintroduction of the GST, with Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz saying the government will improve on its previous formula if it decides to reimpose the tax system. – The Vibes, June 27, 2022