Despite unique opportunity in unity govt, Pakatan seen lacking political appetite for GST

KUALA LUMPUR, Feb 5 — The Anwar administration would struggle to reintroduce the goods and services tax (GST) that economists were recommending for Malaysia, analysts said despite the golden opportunity afforded by the unity government.

With most political parties now under the umbrella of Prime Minister Datuk Seri Anwar Ibrahim’s national unity government, political pushback against bringing back the GST would conceivably be the lower than when the now-allied Barisan Nasional and Pakatan Harapan were rivals.

However, the analysts pointed said it would still not be the case as the main opponents to the consumption tax then as now were the components of PH, which abolished the GST after winning the 2018 general election.

Singapore Institute of International Affairs senior fellow Oh Ei Sun said Umno and Barisan Nasional would likely agree to reintroducing the GST, which had been imposed when Datuk Seri Najib Razak was the PM.

“Mainly it’s the PH parties such as PKR and DAP which are ambivalent about the GST. Umno should have no problem as it was the party initiative under Najib anyway,” he told Malay Mail.

The Anwar government’s austerity drive and professed aim of restoring the economy have led to a growing call for the reintroduction of the GST as one way to broaden the country’s tax base.

On Friday, World Bank lead economist Apurja Sanghi said the GST would be “a mean and lean machine that mobilises revenue the best” for Malaysia, after noting that a consumption tax already existed in some form or another in over 170 countries worldwide.

Despite this rationale, however, Oh said the major opponents to the GST from before would find it difficult to now walk back their arguments against the tax.

“On the economic perspective there is certainly a need to introduce new revenue streams, including reintroducing GST. (But) politically, it is not so popular as the previous round was resoundingly condemned.

“So, there has to be some consensus within PH first before reintroducing it,” he added.

Already, economists and business groups have urged the government to review the sales and service tax (SST) regime, with an eye on replacing it with the GST as soon as even the revised Budget 2023 Anwar will table this month.

According to Universiti Malaya Centre for Democracy and Elections (UMcedel) sociopolitical analyst Associate Professor Awang Azman Awang Pawi, the government could try rebranding the consumption tax as a value-added tax (VAT), as it is called in some countries, to avoid the previous stigma.

This could give the government a chance to differentiate the tax from the GST that BN had introduced and convince Malaysians it was not a direct copy, he said.

Awang Azman noted that despite PH’s heavy criticism of the tax previously, the estimate that over 170 countries implemented some form of consumption tax demonstrated that it was objectively an effective and efficient taxation system.

He said the GST was not only about increasing revenue under a progressive system, but also reducing tax evasion.

“Those who spend more will pay more GST. In fact, there is even a GST exemption from government over controlled goods,” he explained.

Still, he acknowledged that such a move would result in political fallout, which he said the government might try and minimise by introducing the GST at a reduced rate during the initial stages.

The Najib administration had introduced the GST at a rate of 6 per cent, along with wide-ranging exemptions and zero-ratings, which were later criticised for complicating what was meant to be a simple tax system.

“If comprehensive explanation is given and accepted rationally, then it will help reduce the negative impact on the support of parties in the unity government over the reintroduction of the tax system,” Awang Azman said.

Senior fellow at Nusantara Academy for Strategic Research Azmi Hassan said a system such as the GST would be consistent with the new government’s financial goals.

“What Prime Minister Datuk Seri Anwar Ibrahim is talking about right now is how the nation could create more income.

“Therefore, taxing is one of the easy ways and reintroducing GST will help government to get additional RM20 or RM30 billion per year. This could actually cover the (public funds) lost via the leakages,” he said.

Last month, Anwar said the country could save up to RM10 billion from the leakages that occurred in the government procurement system if corruption were eradicated at all levels.

Azmi was another who said the Anwar administration would need to develop a new narrative around the GST — if it were to be reintroduced — to set it apart from BN.

He also cautioned that the government would need to take additional steps to prevent the same inflationary effect that occurred when the GST was introduced previously.

“The government needs to ensure that price of goods will not be increased by the business community using the reintroduction of GST as the reason,” he said.

After a tightly contested 15th general election, PH and BN ended up on the same side to form the so-called national unity government with Anwar as the prime minister, forcing many political rivals into the same side of the political aisle.