Hike GST to cut oil dependency, IMF tells Putrajaya

KUALA LUMPUR, March 4 — Malaysia should gradually hike its goods and services tax (GST) in the future, in addition to reducing the number of exempt and zero-rated items, the International Monetary Fund (IMF) has suggested.

Lauding the introduction of the consumption tax, IMF said the consumption tax would help Malaysia reduce its reliance on revenue from its oil and gas industry which it noted is volatile.

The GST would also help cushion lowered income as a result of the falling global oil price together with fuel subsidy cuts.

“Looking ahead, GST effectiveness could be enhanced by gradually narrowing the list of exempt and zero-rated items which would help raise GST buoyancy,” the IMF said in its staff report on the country released yesterday.

“There is also room to gradually raise the GST rate as part of the strategy to reduce fiscal dependence on hydrocarbons and balance the budget.”

According to the international financial body, fewer exemptions in Malaysia’s GST would help tax authorities to compile more information through cross-checking of return, subsequently increasing tax compliance.

In addition, IMF said Malaysia’s consumption tax rate is among the lowest in the region, compared to 7 per cent in Singapore and Thailand, and 10 per cent elsewhere in Asia.

IMF also praised Putrajaya for taking full advantage of favourable conditions provided by growing economy, full employment, and lower oil price to implement key fiscal reforms, which included GST and fuel subsidy cut.

“In the near term, eliminating fuel subsidies at the pump will help offset the impact on the federal budget of lower energy revenues,” IMF said in its accompanying press release.

“Over the medium term, these reforms will also help the authorities diversify budgetary revenues, balance the budget, and lower the debt-to-GDP ratio. Eliminating fuel subsidies is also an environmentally friendly move.”

IMF predicted that Malaysia’s gross domestic product (GDP) will grow by a “still impressive rate” around 4.75 per cent compared to last year’s 6 per cent, while headline inflation rises to around 3.25 per cent.

In January, World Bank economist Dr Frederico Gil Sander had suggested that Putrajaya shorten its list of goods exempted and zero-rated from the GST, saying Malaysia needs to broaden its tax revenue to help offset the slide in oil income.

PricewaterhouseCoopers Taxation Services Sdn Bhd (PwC) executive director Raja Kumaran was quoted in English daily The Star in October 2014 saying that Malaysia’s zero-rated and exempted lists appear to be the longest in the region.

There are over 900 items that are listed as zero-rated or exempted from the consumption tax system, which will be implemented this April.

Dr Veerinderjeet Singh, chairman of tax advisory firm Taxand Malaysia, also warned of confusion arising from the long list in January, and said the complex GST system could pose administration and accounting challenges to businesses.