Malaysia abolishes unpopular consumer tax

Malaysians are welcoming Malaysian Prime Minister Mahathir Mohamad’s decision to end the controversial goods and services tax (GST) which many blamed for increasing the cost of living in the country.

On Friday, June 1st, the unpopular six percent GST was brought down to zero percent — a promise fulfilled well ahead of the 100 day self-imposed deadline set by the new government.

The tax had been blamed for raising the cost of living, a key factor when voters went to the polls in the historic May 9th elections.

They delivered a spectacular defeat to the ruling coalition that had been in power 60 years, handing the reigns over to Pakatan Harapan, the Alliance of Hope, headed by Mahathir.

Malaysians celebrating No GST

Mohammad Yusof runs a convenience store at a block of offices in Kuala Lumpur’s financial centre. He says he expected the ruling coalition, Barisan Nasional, to lose, and had held back on purchasing new inventory due to the opposition’s pledge to revoke the GST.

“I did not stock up for May as I felt Pakatan Harapan would win. I was right for doing so and saved myself a substantial amount. Of course I will pass the savings on to my customers,” he said showing a receipt for chocolate biscuits.

Malaysia is an oil producing country. The GST was implemented in 2015, as a way to make up the drop in revenue due to weak oil prices. Manokaran Mottain, Chief economist at Malaysia’s Alliance Bank, says it made sense at the time.

“It helped during the critical time when oil prices were down, and there was a big shortfall in the government revenue. At first people didn’t see GST as a burden. The proceeds of the GST were supposed to go back to the public, it was supposed to be for their social welfare. But they realised that didn’t happen and it was going into other things, they felt they were not receiving any of the benefits.”

The resentment against the GST grew along with revelations of what was to be one of the country’s biggest corruption scandals.

Daily headlines of how businessmen around the world and high level politicians, including the prime minister, were allegedly embezzling hundreds of millions of dollars from a state fund called 1MDB, fuelled anger. Many people became bitter about having to pay extra for daily necessities while their tax money was being used to prop up 1MDB.

Analyts say for many people the GST became the symbol of all things that were wrong with the previous government.

To GST or not to GST

At the Hive food court in the city centre, lunch is 6% cheaper than the day before. Much of the talk around the tables is about the controversial tax.

Marketer for a coffee chain, Kevin Yeow, does not share the sentiment of most and believes that the GST should have been kept.

“I think the GST was better for the economy, it was done in a transparent way. There are many Malaysians who do not pay tax and this was a fair way to ensure everyone paid their taxes.”

Across the lunch table, financial analyst Su Ann Kor disagrees. She supports the removal of the GST, but is curious to find out what kind of a tax the government will put in place to plug the revenue hole.

Consumer Tax Summer Holiday

Analysts say only 10 percent of Malaysia’s working population earn enough to pay income tax.

Yeah Kim Leng an Economics professor says it will be challenging for the government to find a broader tax system than the GST which affected every consumer. He points out that the government is now dealing with a debt much larger than the previous administration had presented, and at $273.39bn or 80.3 % of the GDP, it needs to be urgently addressed.

“What’s important now for the government to control its spending because if it can bring down the level of its spending.”

He says for now it is the most realistic alternative, as the government has declared a “tax holiday” to encourage spending until September, when a new sales and services tax will be announced.

Donate to the Hope Fund

The Malaysian government has yet to come up with a concrete long term solution of how to bring in more revenue to tackle the debt.

In the meantime, they have drawn inspiration from independent social media crowdfunding campaigns.

Many people circulated Facebook pages calling on Malaysians to give what they can to help bring down the debt.

The government has set up what’s called Tabung Harapan Malaysia, or the hope fund. It’s being circulated on social media with a bank account number so those who want to help chip away at the debt can contribute directly.

It’s proved popular, the Hope Fund raised nearly $2m within the first 24 hours when it was launched.