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Malaysian Prime Minister Anwar Ibrahim, who is also finance minister, has said that he is not currently considering reinstating Malaysia's Goods and Services Tax.
Efficient and transparent
Speaking to Bloomberg on Jan. 30 while on a one day visit to Singapore, he spoke about Malaysia's economy, particularly about its national debt.
Interviewer Haslinda Amin asked about a possible GST implementation, and whether it was "off the table" as long as Anwar was prime minister.
Saying that while he believed the GST was the most efficient and transparent way of raising tax revenue, he asked rhetorically:
"When you have abject poverty, when people do not get even a minimum pay, how do you have a transparent taxation system? Now if you have enough funds, liquidity in the system, then you can say alright, you can pass on to the poor. But we don't have that."
He added that re-implementing the GST could only be considered once the income level of Malaysians was increased.
You're taxing everybody: Anwar
Anwar mused that once Malaysia's income level was raised to about 3,000 to 4000 RM a month (S$930 to S$1,230), only then could the government begin to think about what benefits could be passed on to the poor through the implementation of GST.
"Because otherwise, you're taxing everybody, although you can give some compensation in return to the poor," he said.
Why the need for taxation?
The question of GST came up for two reasons.
The first is that Malaysia's national debt has reached RM1.5 Trillion (S$450 billion), over 80 per cent of the country's gross domestic product (GDP).
Bloomberg's line of questioning came when they were asking Anwar about the nation's debt levels. Anwar had previously said that Malaysia's national debt required immediate action.
When speaking to Bloomberg, he said that Malaysia's debt had hit its ceiling and "should gradually go down".
Politics over GST
The second is the domestic politics surrounding Malaysia's GST, which was first implemented in 2015 by the government of former Prime Minister and now convicted felon Najib Razak.
Repealing the tax become a major plank in Anwar's Pakatan Harapan's coalition's election campaign, and it was abolished in June 2018 when PH came to power.
It was replaced by a Sales Tax and a Service Tax, collectively know as the SST.
The main difference between the SST and the GST is that the SST is only applicable at a single stage in a supply chain.
Whereas the GST is what is known as a multistage tax, and can be collected from every business within the supply chain.
Also, as a percentage of the sales price, its collection is relatively straight forward.
But as most of lower income group's income is spent, a higher proportion of their income ends up being paid into GST.
Singapore implements policies to offset this by providing vouchers to its citizens, with lower income groups being provided larger vouchers.
Although Najib's Barisan Nasional coalition returned to government in 2020 under Muhyiddin Yassin, and won the Prime Ministership with Ismail Sabri Yaakob in 2021, neither man reinstated GST.
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Top image via Anwar Ibrahim/Facebook