Malaysia to impose 6% sales tax
- Published: 25 Oct 2013 at 19.45
- Online news:
KUALA LUMPUR - Malaysian Prime Minister Najib Razak announced plans on Friday to impose a 6% goods and services tax by 2015 to increase revenue and stem rising government debt.
Prime Minister Najib Razak engters Parliament to deliver the 2014 budget speech on Friday. (AP photo)
Mr Najib said fuel and other subsidies would also be slashed as part of fiscal reforms, while personal and corporate tax rates would be lowered to make the economy more competitive.
Tabling the 2014 budget in Parliament, he said the broad goods and services tax would replace the current sales and services tax from April 1, 2015. He said the rate was among the lowest in the region and that essential food items, education, housing, public transport and healthcare would be excluded.
"The GST is not a new additional tax. Our inflation rate is low at 2%," said Mr Najib, who is also finance minister. "We are convinced that this is the best time to implement the GST because inflation is low and under control."
Malaysia's economy has come under pressure amid rising domestic debt, a swollen fiscal deficit and a shrinking current account surplus. The central bank cut the country's growth forecast this year to between 4.5% and 5%, while Fitch Ratings lowered Malaysia's credit rating outlook to negative from stable, citing a lack of fiscal reforms.
Standard & Poor's has also warned of a credit ratings downgrade for Malaysia if it fails to tighten its public finances.
Analysts hailed the government's move to implement aggressive fiscal reforms.
"This will translate into a positive message to investors, which is a major policy change that they have been waiting for," said Wan Suhaimi Saidie, economist with Kenanga Investment Bank.
Opposition lawmakers, however, said the government had consistently overspent its budget for the past 15 years and the move to cut subsidies and raise tax revenue wasn't match by tightening its purse strings.
"The subsidy cuts aren't going toward reducing our debt or deficit, instead it is just providing more funds for the government to go shopping," said lawmaker Tony Pua.
"The 2014 budget paints an obvious picture of a government failing to reform despite a brave goods and services tax proposal.''
Mr Najib said the government planned to spend 264.2 billion ringgit (2.62 trillion baht) next year, of which 82% would be for operating expenditure and the rest for development.
He said the economy was expected to strengthen to between 5 and 5.5% growth in 2014, up from 4.5-5% this year. With rising revenue, he said the fiscal deficit is expected to narrow to 3.5% of GDP in 2014, from 4% this year, with hopes of achieving a balanced budget by 2020.
"This budget ensures that the economy expands at a strong pace, the fiscal deficit is reduced and the nation and the people continue to prosper," he said.
To sweeten the deal, Mr Najib said cash handouts would be increased next year to 4.6 billion ringgit to benefit 7.9 million poor people.
Under plans to raise progressive income tax scales for individual taxpayers, he said some 300,000 people will no longer have to pay taxes. At the same time, he said corporate tax will be cut by 1 percentage point to 24% from 2016.
The government, in an economic report released with the budget, said fuel and other subsidies would be cut by nearly 16% to 39.4 billion ringgit next year.