Kuala Lumpur, January 5, 2023 – As the global environment is expected to be challenging in 2023 and as Malaysia’s current fiscal space remains fairly tight, the Federation of Malaysian Manufacturers (FMM) firmly believes the revival of the Goods and Services Tax (GST) is a timely lifeline for the country’s debt dilemma as well as to shore up adequate fiscal buffers in order to weather the next economic downturn. Hence, FMM calls on the Government to reintroduce the GST in the coming revised 2023 Budget at a rate that would not burden the rakyat but still help widen its revenue base to enable a faster reduction in the fiscal deficit and lower government debt ratio substantially. Bearing in mind that the Government’s focus now is the revival of the economy and manufacturers will now need to prioritise their resources on rebuilding their business, FMM proposes for the reintroduction of the GST (i.e. GST 2.0) to be implemented only in 2024.

As 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. In this regard, GST 2.0 implementation should not be considered in isolation but as a part of the holistic assessment of Malaysia’s tax systems which will require Government to consult all stakeholders for a thorough review process.

Based on the FMM – MIER Business Conditions Survey 1H2022 conducted in August 2022, close to three quarters (74%) of the survey respondents strongly supported for the GST to replace the current Sales and Service Tax (SST) 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. 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. 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 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.