Malaysian GST Delayed Again

October 14, 2010 Taxation in Malaysia

An Evening at Kuala LumpurThe Malaysian Government has once again delayed replacing the country’s current sales tax with a new Goods and Service Tax system, which could have raised a reported MYR 8.8 billion (approx. USD 2.84 billion) annually.

On October 13th the Malaysian Government issued a statement saying that it has decided to indefinitely delay the implementation of its controversial Goods and Services Tax (GST). The tax was originally mooted in 2007, and was aimed at lessening the country’s heavily reliance on revenues drawn from the state-owned oil company Petronas. It was theoretically intended to kickoff a series of tax overhauls and simplifications, which would have potentially drawn a greater number of foreign investors into the country.

The Malaysian Finance Ministry indicated that the Government still intends to implement the GST tax, saying that the new system would ensure “a strong and sustainable fiscal position to support the long term economic growth.” However, it has now become evident that the Government wishes to conduct a public consultation on GST, to gauge and address concerns with the newly introduced tax. Commenting further the Finance Ministry said, “The government will take into account the interest and welfare of the society to ensure the implementation of GST is well received.”

The GST delay has led to speculation among analysts that the Government is preparing to announce a definite GST implementation date shortly after its next election, due its potential political repercussions. The idea of implementing GST has repeatedly proven to be a widely controversial and relatively unpopular move in Malaysia, with many doubting its need and potential effectiveness. Lim Kit Siang, leader of the opposition Democratic Action Party, explained, saying, “…there is no justification for GST at a time when there is abuse and corruption.” He added that there is a great political danger in introducing GST, as public displeasure at the move will certainly “boomerang through the air and whip the people who introduce it.”

Photo by Storm Crypt