Malaysia’s Goods and Services Tax to be negated on 1 June

The new Malaysian government has announced its intention to abandon the controversial Goods and Services Tax (GST), honouring a key election promise made by Mahathir Mohamad.

On 1 June, the GST – which currently stands at 6 per cent – will be reduced to 0 per cent, the government confirmed in a statement.

According to Channel News Asia, the statement added that ‘businesses must ensure that prices of goods and services comply with the Price Control and Anti-Profiteering Act 2011 at all times.’

The GST was introduced by former Prime Minister Najib Razak in 2015 to address shortfalls heralded by declining oil prices. However, it has proven unpopular with Malaysians, coinciding with rising living costs and prompting Mahathir to vow to abolish the tax during his campaign.

Removing the GST from the legislature will a require parliamentary process. The revision to 0 per cent, however, enables the government to effectively negate the tax sooner.

According to analysis from Kroll, shared with Asia House, removing the GST ‘would create a large budget shortfall with no obvious substitute,’ indicating a bumpy road ahead for the Malaysian economy. Najib’s government ‘had planned to collect 43.8 billion ringgit (S$14.8 billion) in 2018 in GST, about 18 per cent of total revenue,’ The Business Times reports.

One option Mahathir will be looking at to plug the gap is the establishment of a sovereign wealth fund based on the country’s energy resources. Malaysian business news outlet The Edge Markets reports that ‘the The Pakatan Harapan alliance pledged to set up a sovereign wealth fund using profits from state-owned oil company Petroliam Nasional Bhd to provide future welfare for the people and stability to the country.

‘That may help the government balance its budget, as it moves toward scrapping the GST.’