KUALA LUMPUR: The Finance Ministry is estimated to collect an additional RM3bil from the higher sales and service tax (SST) of 8% from 6% currently, says secretary general of treasury Datuk Johan Mahmood Merican.
But this extra tax revenue is hardly going to move the needle much in terms of beefing up the government’s coffers.
As it is, there was a general sense of disappointment that the government had opted to raise the SST instead of the more efficient goods and services tax (GST), which saw higher revenue collection compared to the SST when it was implemented in 2015-2018.
Prime Minister Datuk Seri Anwar Ibrahim, during the recent tabling of Budget 2024, said he was concerned about the impact on lower-income households should the government decide to go ahead with the GST.
Aside from the higher rate, the scope of the SST will also be widened to include logistics services, brokerage and underwriting, as well as karaoke.
MARC Ratings Bhd chief economist Ray Choy told StarBiz that he was disappointed that there was no follow up discussion on the GST.
“In my opinion, the SST is a more complicated tax system than the GST.
“The issue with the SST is really about the broadness of where it is actually applied. The SST is not applied on every item.
“Right now, there will be an increase in the SST from 6% to 8% but without increasing it on telecommunication companies, and food and beverage.
“So, the question is eventually how is it going to escalate?
“Are we going to have a system where everything will be overly tiered, overly specific, whereas the GST looks at all levels of the value chain.
“The GST allows the country to capture tax more effectively because the fundamental issue is about tax compliance. If tax compliance is an issue, why not implement the GST?”
He was one of the panelists at a 2024 post-budget debate organised by the Malaysian Economic Association held yesterday.
When asked if the government should consider the reintroduction of the GST at a lower rate, eg, 3% to 4%, rather than to raise the SST, Johan said, “It really does not make sense to introduce the GST at 3% to 4% where the breakeven is closer to 4%. Why go through the political agony of reintroducing the GST?
“There are only some areas where we needed to improve the structure, how do we ensure the refunds, which were the key challenges we faced previously.
“We recognise that the reintroduction of GST requires a fresh legislative process and takes time, which cannot be implemented over a year.
“We wanted to focus on what we can do immediately.”
Touching on the issue of fuel subsidy, Johan said the government was in the process of evaluating the mechanism on implementing targeted subsidy on petrol prices, which could be in the form of cash transfer or tiered pricing.
“There continues to be a big debate on whether we raise prices and compensate through cash transfers, or whether in some means what we are hoping to do with electricity and diesel in some form of tiered pricing. There are pros and cons that we are looking into,” he added.
He explained that targeting subsidies on diesel was a priority due to leakages.
“We are focusing more on the immediate term. We wanted to lay out the sequencing which starts off the journey towards better targeting of subsidies.
“This does not mean targeting of petrol subsidies is not on the table. In fact, this is something we are actively looking into. It is just that we are not at the stage where we have firmed up yet.
“Diesel is one where there is a clear case of leakage in the commercial sector. Between diesel and petrol, we look at diesel prices first.
“At least in the case of petrol, generally, it is being used by the T20, but ultimately it is largely used by everyone.”
He added that the Prime Minister was very clear that the current situation is not sustainable and cannot afford to continue giving subsidies and have a low tax base when there are so many development requirements.
“We are not able to remove subsidies all at once. We have to do that in a gradual manner.
“We prioritise the ones like chicken and eggs prices, which are distortionary and now that the supply has stabilised, this is one we should actively look at.
“Electricity is one where coal prices have gone up and we have no choice but to improve targeting subsidies.”
