GST likely in 2011 or 2012

The Malaysian government is expected to table the draft of the Goods and Services Tax Bill in Parliament on December 17. The Goods and Services Tax ("GST") is a consumption tax which is also called a valued-added tax in other jurisdictions.

The GST is regarded by economists as an efficient tax mechanism due to its broader base of tax reach.

Some analysts expect the actual implementation of the GST in Malaysia to take place in 2011 or 2012. It is also expected that there will be a reduction in the top-tier personal income tax to ameliorate the effect of the GST. There is also likely to be significant transactions that are exempted from the GST to avoid burdening lower-income groups.

There is some concern about the efficiency of GST refunds, which is a key feature of value-added tax regimes in other jurisdictions.

Here is the report from the Business Times:

The goods and services tax is likely to be near term revenue neutral and could be accompanied by personal income tax cuts to avoid political backlash, says an economist

MALAYSIA may eventually implement the goods and services tax (GST) although analysts say it is more likely to happen either in 2011 or 2012.

They said the government is expected to study all aspects before introducing the tax.

"This is because GST is a regressive tax hitting the lower income group the most, so (it) can be politically unpopular," economist Kit Wei Zheng said.

He was commenting on a news report quoting Prime Minister Datuk Seri Najib Razak in New York as saying that the first reading of GST proposal will be tabled during the current parliamentary session.

He thinks the GST is likely to be near term revenue neutral, as it would be replacing sales tax and could be accompanied by personal income tax cuts to avoid political backlash.

"The fiscal benefits from GST implementation would be felt more in the medium term, with immediate benefits far less visible," he said.

He added that the government has already hinted it is in the final stages of completing a study on the GST implementation and that the rate would be lower than the sales and services tax rates while exemptions would be granted to lower income groups.

The cabinet decided at its meeting last week for the tabling to allow for discussions and feedback from the public.

Najib had said that if the government decides to implement the tax, it would at a rate that will not burden the poor or the middle class.

Najib also said the rate for the proposed GST may be less than the current sales and services rate of between 5 per cent and 10 per cent.

Standard Chartered Bank economist Alvin Liew said the decision to look at the GST is definitely a move in the right direction.

"The timeline for this to happen may not be in 2010, maybe more likely in 2011 when growth becomes more entrenched," he said.