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NEWS UPDATES 29 November 2009

Malaysia: New tax plan to diversify revenues

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Malaysia plans to introduce a 4.0 percent goods and services tax (GST) in 2011, replacing current sales and services tax in a bid to diversify national revenues, AFP quoted a minister as saying Thursday.

The government had previously proposed to introduce a GST from the beginning of 2007 but the plan was deferred due to widespread opposition.

"We are replacing the current sales and services tax, which is currently between five and 10 percent," Second Finance Minister Husni Ahmad Hanadzlah said according to state news agency Bernama. He said the tax legislation will be submitted in parliament in the current session which ends mid-December.

A second reading will be in March next year and implementation would take place 18 months later, he said. The government has said the changes would provide a more comprehensive, transparent and simple tax model.

"The revenue source must be sustainable. If we can secure a sustainable revenue, we can get a good budget," he said. Husni said the government was expected to earn 1.0 billion ringgit ($294 million) in the first year of the GST implementation.

The GST would replace the existing taxes on sales and services and would not put pressure on prices, he said, adding that to ease the burden on consumers, staple foods such as rice, sugar, cooking oil and flour will be exempted.

The plan drew immediate criticism from opposition lawmakers who said it will cause living costs to spike. Charles Santiago from the Democratic Action Party (DAP) which is a member of the Pakatan Rakyat opposition alliance said the government needed to release more details about the shake-up.

"There is a sense of caution because it could have an impact on the lower and middle classes, particularly in food, health care and clothing," he told AFP.

Opposition legislator D. Jeyakumar from the Socialist Party warned that "the GST percentage will start low but will increase over the years." "It is definitely a bad move. The government is attempting to shift the taxes from the rich to the ordinary people," he said.


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