News & Events

Reintroduction of the Goods and Services Tax (GST) is Welcomed to Support Stronger Economic Revival

Kuala Lumpur – As a strong supporter of the Goods and Services Tax (GST) regime, the Federation of Malaysian Manufacturers (FMM) welcomes YAB Prime Minister’s call to reintroduce GST at a rate that would not burden the rakyat but still help widen its revenue base in order to lower the government debt ratio and accelerate the pace of fiscal consolidation.

FMM is of the opinion that the GST is a more transparent and effective tax regime compared to the Sales and Services Tax (SST). Based on a survey carried out by FMM on the reintroduction of GST in May 2020, a total of 499 companies which responded to the survey strongly supported for the GST to replace the current SST 2.0 as GST provides a fairer tax structure and it eliminates cascading and compounding of taxes commonly found in the SST regime. In addition, prices of Malaysian exports will become more competitive on the global stage as no GST is imposed on exported goods and services, while GST incurred on inputs can be recovered along the supply chain. Moreover, because this broad tax base system would increase indirect taxes, it will give flexibility to the Government to reduce direct taxes (personal income tax and corporate tax) to make Malaysia a more attractive business destination.

Nevertheless, bearing in mind that the Government’s focus now is the revival of the economy and manufacturers will now need to prioritise their time and energy on rebuilding their business, the reintroduction of the GST (i.e. GST 2.0) should not be considered in isolation but as a part of the holistic assessment of Malaysia’s tax systems and the country’s fiscal position. While the introduction of a broad-base consumption tax would strengthen the country’s fiscal position, GST 2.0 must be easy to manage and also not increase the cost of doing business.

As the change and transition to GST 2.0 can be challenging, FMM calls for the Government to consult all stakeholders for a thorough review process to ensure the success of introducing an effective tax regime. While switching back to the previous automated model under the GST Tax Payers Access Point (TAP) system will not be difficult as GST compliance systems are already in place, companies have asked for a 6-month transition period to change from current SST to GST 2.0 based on our May 2020 survey.

Specifically, manufacturers have proposed improvements to GST 2.0 to be more consumer-and-business-friendly as follows:

  • Reduce GST rate to 4% to boost conducive business conditions which would lead to higher investments and employment opportunities as well as higher disposable income for the rakyat.
  • Gradually bring down corporate tax rate to 20%.
  • Zero-rate all essential goods and services.
  • Maintain GST registration threshold at RM500,000.
  • Minimise delay in refunds especially for exporters and businesses with zero-rated supplies as the long refund period between six to eight months has rendered the GST into an accumulating tax burden.
  • Include the provision of interest on late payments and refunds in the GST legislation to ensure strict compliance to the Client Charter and integrity of the system.
  • Create more efficient schemes to replace Approved Trader Scheme (ATS) and Approved Toll Manufacturing Scheme (ATMS) as they are complicated and difficult to implement.
  • Ensure proper mechanism is in place to monitor price control and anti-profiteering in the market when the tax system is reintroduced.