Treasury will rely less on direct taxes with GST

 The additional revenue brought in by the goods and services tax (GST) will further reduce the Treasury’s dependence on direct taxes, said Datuk Seri Ahmad Husni Hanadzlah.

The Second Finance Minister said that with less direct tax burden on the people and businesses, there would be greater investment and even consumption within the domestic economy.

“The strategic impact would be that Malaysia, in percentage terms, will be less dependent on the external sector, on exports,” he said in his keynote address at the National GST Conference in Kuala Lumpur yesterday.

He said the Finance Ministry had already begun the process of reducing dependence on direct taxes, whereby personal and corporate income taxes had been lowered gradually over the years from 30% and 40%, respectively, to 26% and 25%. For SMEs, it has been lowered to 20%.

“It is essential that an efficient tax regime is provided for them (private sector). An unwieldy tax regime is expensive to manage and costly to administer,” he said.Husni said the GST, which would be implemented on April 1, 2015, would also simplify the tax system, encourage compliance and reduce administrative and business costs.

As its implementation will cover three quarters of 2015, he said the Government was looking at earning roughly RM2.5bil in addition to the revenue secured under the sales and service tax.

He said this would jump to RM8bil in 2016 and keep increasing as more and more companies came onboard.

Husni said the Government was also intensifying efforts to promote the adoption of industrial design into exports, especially from the manufacturing sector, so that it could justify higher sales prices and edge its gross domestic product higher.

However, he said such efforts to upgrade this across Malaysia’s economy required money, pointing out that every tax incentive introduced by the Treasury was money spent despite incurring no immediate cash outlay.

“Without the additional revenue, we would not have the sufficient allocations to educate members of our economic sectors to scale up through the value chain. The global market is getting increasingly competitive. We cannot compete on the basis of cost alone,” he said.

Besides this, he said, the list of zero-rated and tax-exempt goods would be made public once it was gazetted next month.

“We have made changes because of the feedback we received from the rakyat, particularly on food items, which we had previously included in the GST,” he said, adding that it was still studying areas where it could give exemptions to the healthcare sector.

Husni said that the Government was hoping to finalise its subsidy rationalisation study by the fourth quarter of this year, so it could be implemented next year.

“We are also looking at what salary level we will give subsidies to,” he said, adding that it would decide later on whether to exempt petrol from the GST.

Additionally, he said the Domestic Trade, Cooperatives and Consumerism Ministry was preparing a database of around 10,000 products per constituency, which would have data on the product price and cost of production.

He said this would allow its officers to detect whether rising prices, following the GST’s implementation, was due to an increase in margins or costs, adding that it could then use the Price Control and Anti-Profiteering Act 2011 to act against profiteers.

On preparations for Budget 2015, Husni said his ministry had a total of eight focus groups working on the eight areas identified, including accelerating export growth, strengthening quality private investment and leveraging entrepreneurship for growth.

“The main focus of this Budget will be on the standard of living and well-being, as well as fiscal sustainability without sacrificing economic development,” he said.