2025 Budget unlikely to announce reimplementing GST to replace Sales and Services Taxes
Rumours of an announcement at this week’s 2025 Budget of the reintroduction of Goods and Services Tax have been played down by prime minister Datuk Seri Anwar Ibrahim.
He said on 13 October 2024, that GST will only be reimplemented if the minimum wage threshold is at RM3,000-RM4,000, as Bernama reports. While acknowledging that the tax system is efficient and would help the government expand its coffers with higher revenue collection, he said the poor should not be burdened with such a tax system.
Press rumours of GST relaunch
Malaysian press and financial analysts are reporting a possible announcement at the 18 October 2024 Budget 2025 announcement of the reintroduction of a broad Goods and Services Tax. Prime Minister Anwar Ibrahim’s Cabinet is believed to be evaluating the reform following strong growth in the economy and a reluctance to reform diesel taxes. Although the communications minister, Fahmi Fadzil, denied this could happen.
GST could replaced Malaysia’s turnover-based Sales and Services Taxes. GST was first introduced in April 2015 to replace SST, but was withdrawn in July 2018 and SST reimplemented.
This follows recommendation on 27 August 2024 from the Organisation for Economic Cooperation and Development (OECD) that GST would broaden and stabilise the tax base, and help the government cope with the economic shock of the COVID-19 crisis. It would also limit the cascading – compound taxation – effect on businesses of the current irrecoverable SST. The OECD suggested that Malaysia look into bringing back the GST in stages as one of the ways to increase revenue.
How Malaysia fell out of love with GST the first time (2015 to 2018)
SST applies to less than 100,000 companies, but GST covered almost half a million traders, giving a more reliable and larger tax base. However, final sale-only SST was felt to be simpler to administer than mult-stage GST. GST also failed to stop the rising government debt problem – a promise for its introduction. As a result, the new GST become unpopular and was blamed for rising prices following its 2015 introduction. This led to its withdrawal in June 2018 following election commitments by Pakatan Harapan.
Feb 2023: Prime Minister rules out return to Goods & Services Tax to replace Sales and Services Tax
PM Anwar previously in February 2023 confirmed there are no plans to return to Goods & Services Tax (‘GST’). Following a review to scrap the existing Sales and Services Tax for a second time, the government has shelved the idea due to inflation fears. Instead, the short term focus will be on cutting governmental subsidies.
175 countries have a VAT or GST regime.
