Assessing the Need of Reintroducing Goods and Services Tax (GST) in Malaysia

The reintroduction of the Goods and Services Tax (GST) in Malaysia has been a subject of policy debate, particularly in broadening the tax base, strengthening tax efficiency, while ensuring a sustainable and stable source of fiscal revenue.

This report is to discuss reasons for the reintroduction of the GST and factors to consider if the GST were reintroduced. On a net basis, GST has more positives than negatives, and is proven to be a better tax system as it is more effective, efficient, and transparent. It is widely acknowledged to be business friendly and could spur economic growth as well as increase industry competitiveness in the global market.

GST can boost tax revenue collection given its broader tax base as evidenced in the collection of an average RM42.7 billion per year during the full-implementation period 2016-2017. This was higher than an average of RM29.4 billion per year collected from the Sales and Service Tax (SST) in 2019-2023.

A key consideration in the long-term tax strategy is aligning GST with a broader tax reform agenda, that is shifting from direct taxes to indirect taxes, by decreasing direct tax rates and increasing indirect tax rates. Malaysia’s current headline corporate income tax rate at 24% is uncompetitive compared to regional peers though the Government has argued that our effective tax rate is much lower given the generous tax incentives, deductions, exemptions, reliefs and capital allowances. The current worldwide trend is shifting from direct taxes to indirect taxes. Many countries that have implemented GST or value-added tax (VAT) to ameliorate the burden of indirect taxes by lowering direct taxation.

The primary concern regarding GST is that it will increase inflation, and higher prices of goods and services, resulting in high cost of living, impacting the low-income households. It is reckoned that there were price increases when the GST was introduced. However, these concerns can be mitigated by expanding the zero-rated scope for essential goods and services, direct cash assistance to the targeted vulnerable groups, and implementing robust price monitoring mechanism to rein in excessive price increases. Strengthening consumer awareness initiatives will enhance public confidence in GST and anchoring inflationary expectations.

A crucial factor in ensuring its smooth implementation will be businesses’ readiness and robust technology infrastructure. ACCCIM’s survey indicated that businesses would need at least 6 to 12 months of preparation for the GST. Compliance concerns, including cumbersome procedures and high costs, must be addressed through improved GST refund mechanisms, streamlined reporting processes, and user-friendly filing systems. Businesses expect the government’s support in areas such as financial grants for system upgrades, tax holidays, and comprehensive training programmes.

In conclusion, a strong narrative backed by an extensive education programme is key to an effective reintroduction of GST for ensuring a sustainable revenue mechanism. Clear guidelines, price surveillance and anti-profiteering enforcement, and stakeholders’ engagement are essential in securing public and business confidence in the GST.

The Need for a Regional Minimum Wage

• Malaysia's minimum wage policy was first introduced in 2013. Throughout the period 2013-2025, the minimum wage has been revised five times (2016, 2019, 2020, 2022, 2025) from RM900 per month in 2013 to RM1,700 per month in 2025, marking an increase of 88.9%. 

• The minimum wage policy initially differed between Peninsular Malaysia and Sabah and Sarawak, a practice that lasted until 2018. While the minimum wage was uniformly set at RM1,100 per month between January 2019 and January 2020, the Government introduced a transitional adjustment, raising minimum wage to RM1,200 per month in city and municipal council areas, while other areas remained at RM1,100 per month since February 2020. Started May 2022, this was replaced by a uniform national minimum wage again at RM1,500 per month and subsequently raised to RM1,700 per month with effect from February 2025, with microenterprises who hired less than five employees can comply at a later phase. While these reforms were intended to promote equity and standardisation, persistent gaps in compliance continue to undermine their effectiveness. 

• There are calls now for establishing a minimum wage rate based on states and local conditions, accounting for differences in socio-economic conditions and demographic. Regional minimum wages can be a better option than a single national minimum wage policy because they can account for regional differences in cost of living, socioeconomic factors, and labour market conditions.

• The following arguments validate for the implementation of a regional minimum wage:

• Better reflection of localised economic realities. Different states have different economic and business conditions, with varying level of income levels, labour market conditions, and business costs. Hence, a regional minimum wage can better accommodate differences in minimum wage.

• More equitable distribution of income. By adjusting the minimum wage based on varying cost of living across different states/regions while considering local economic and business conditions. This can help ensuring that workers in high-cost areas can afford necessities while not unduly burdening businesses in lower-cost areas.

• Stimulating local economies. Higher minimum wage for workers living in high cost of living areas can help to improve their purchasing power, supporting domestic spending and spur economic activity.

• Reducing labour market distortions. A uniform minimum wage might force some businesses operating in slower economic growth amid high business costs areas to reduce employment due to higher labour costs. A regional minimum wage would better align wages with local economic conditions.

• This paper reviews the current minimum wage determination, and its appropriateness, explores the option of implementing regional minimum wage, and its challenges.

南洋商报

南洋商报

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