LETTERS: The government's coffers have come under pressure as its fiscal deficit deepens amid the Covid-19 pandemic, threatening it into further debt. One cannot help but look back on how we could have done better.
As we struggle with a weak fiscal balance, we ask ourselves whether we could have had better public revenue against public expenditure, which could have provided us with better financial firepower to fight the devastating effects of the pandemic on the economy.
This takes us back to the time when Malaysia implemented the Goods and Services Tax (GST) in 2015. Today, 160 of 195 countries have implemented the GST.
The reasons for its implementation is straight forward: a problem in tax collection. In some tax regimes, the tax coverage is limited, giving rise to indirect taxes, which in turn give rise to ambiguity and loopholes.
Tax evasion was one of the main problems before 2015.
When the broad-based tax regime of GST came into effect in Malaysia on April 1, 2015, it was to ensure that the coverage encompasses all economic sectors, but with the flexibility of 0 to six per cent.
This means that GST can be zero-rated for essential sectors, services and those consumed by the lowest-income group.
A cursory glance at our tax situation since 2015 has shown that Malaysia has a much lower tax rate compared with its Asean neighbours.
An Ernst & Young Economic Outlook 2020 report shows that Malaysia's six per cent tax rate under GST is low compared with other Asean countries, whose tax rate ranges from seven to 12 per cent.
According to an Inland Revenue Board study, Malaysia's tax to GDP ratio was at 13.6 per cent in 2016, 13.7 per cent (2017) and 12.8 per cent in 2018, compared with the Organisation for Economic Cooperation and Development average of 34.2 per cent.
This sits well in the middle of Asean countries in 2017, with the highest being the Philippines and Thailand at 17.5 per cent and 17.6 per cent.
Unfortunately, we did not have the opportunity to settle down with the GST regime when the Sales and Service Tax was brought back in 2018.
But from 2016 to 2019, government revenue increased from RM212.4 billion to RM263.3 billion.
This goes to show that the implementation of GST has progressively brought more revenue to the government's coffers, even though our tax-to-GDP ratio is low compared with our neighbours.
This means that GST tax revenue has been more efficient for us as it covers a wider ground, leaving little room for tax evasion.
The decision to implement GST should be seen from an economic perspective, and implemented as a form of necessity in a country that is struggling fiscally to save the economy from a recession.
Perhaps the introduction of GST could have been done at a lower rate than six per cent. A three per cent GST rate would have been more suitable in Malaysia's context, and we could increase it as the economy improves.
A solid GST regime would have given us more fiscal space to save our economy from a free fall.
I hope that once the dust settles politically, and with the discovery of a vaccine or treatment for Covid-19, we could explore the reimplementation of GST for a better future of the country. If 160 countries can do it, so can we.
CHEAH CHYUAN YONG
Chairman, International Strategy Institute
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times