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aws全区号(www.2km.me)_Reintroduce GST for the right reason, not time

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AT the federal government level, the 12th Malaysia Plan made no specific reference to nor gave any timeline on the reintroduction of the goods and services tax (GST) from now until 2025.

At the ministerial level, the Finance Ministry recently announced that it is “not the right time yet” for the reintroduction of the consumption tax. Will there ever be a “right time”?

My position on GST has been consistent since day one. It is not a question of “when”, but rather “what”, “why”, and “how”.

This piece is yet another attempt to explain the rationale of reintroducing GST in light of the federal government’s growing operating expenditure, particularly the financing sustainability of universal cash transfers (UCT).

In 2012, the initial objective of the 1Malaysia People’s Aid (BR1M) programme was to complement the then government’s fiscal consolidation and subsidy rationalisation agenda.

During its pilot programme, a one-off RM500 payment was handed out to households with a monthly income of less than RM3,000.

Today, the People’s Welfare Aid (BPR) even covers M40 households, as it intends to supplement household incomes during prolonged lockdowns.

If one were to combine these UCTs into an account, it would cost the government RM17.1bil this year, covering about a third of the Malaysian population, up from RM2.2bil with 4.3 million recipients nine years earlier.

This represents a compounded annual growth rate (CAGR) of 25.6%.

Following the 14th General Election (GE14), the Pakatan Harapan (PH) government unveiled its maiden budget, where it rebranded BR1M as Cost of Living Aid (BSH) with a smaller budget and number of recipients.

In the same year, the government also overturned GST in favour of an outdated indirect tax system.

It halved the government revenue coming from GST, which was also almost 10% of the total revenue collected in 2018.

The abolishment of GST has negatively affected the sustainability and effectiveness of BSH (later rebranded again by the Perikatan Nasional government as BPR).

When subsidies for major consumer goods – such as cooking oil, sugar and petrol – were fully eliminated, low-income and vulnerable groups continued to feel the pinch.

The PH government had little fiscal room to expand the BPR’s coverage due to a narrower tax base, straining the present government’s fiscal position as well.

In addition, the reintroduction of subsidies following GE14 and subsequently, the prolonged lockdowns, have complicated the inter-agency coordination for future fiscal reforms.

Considering that both sides of the parliamentary aisle decided to continue with BPR and its iterations, any alternatives in pursuing UCT without expanding the tax base would be detrimental and regressive: it negates the first-best outcome, increases the deadweight loss to the economy, leads to an inefficient allocation of resources and encourages agencies’ “turf” which will impede effective public sector coordination.

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