Malaysia needs GST again

Malaysia's government argues against reviving the goods and services tax (GST) until median wages reach RM4,000. This approach is misguided, as Malaysia needs a broad-based consumption tax to fund better services. The country must address why GST was so distrusted in the past. The original implementation lacked public understanding and was associated with a government already perceived as wasteful.

Distrust turned GST into a symbol of public mismanagement. The controversy over unclaimed GST refunds deepened this distrust, as businesses should never have financed the government's cash flow through delayed refunds. Malaysia must replace GST with a sales and service tax (SST) that is more transparent and avoids cascading taxes through supply chains.

The current SST system is less efficient and relies on complex classifications and exemptions. Malaysia's revenue shortfall requires a broader, more stable tax base. Although the median wage is RM3,027, it would take over seven years to reach RM4,000 even with a 4% annual growth rate. Waiting for a wage increase is an inadequate strategy for securing revenue for a higher-wage economy.

Instead of focusing on the RM4,000 condition, the government should prioritize rebuilding trust in the tax system before implementing GST. Targeted cash assistance and simplifying registration and filing processes for small businesses are crucial steps towards this goal.