Financial Deterioration Due to COVID-19... Malaysia Proposes Tax Increase

Prime Minister Yassin "Considering Reintroduction of Goods and Services Tax"

If introduced, annual tax revenue would increase by 11.3 trillion KRW

Tax burden increases at every production and distribution stage

Public reacts negatively: "Reform the system first"

[Asia Economy Kuala Lumpur Correspondent Hong Seong-ah] The Malaysian government is contemplating a tax hike to absorb the fiscal shock caused by the response to the novel coronavirus disease (COVID-19). However, there is considerable opposition arguing that collecting more taxes amid a sluggish economy would increase the burden on the public.

According to local media such as The Star on the 19th, Muhyiddin Yassin, Prime Minister of Malaysia, announced that he would consider a tax reform plan centered on the reintroduction of the Goods and Services Tax (GST) to offset revenue shortfalls. GST is a tax applied to all goods and services traded in Malaysia, with a rate of 6%. However, it has been criticized for imposing taxes at every stage from manufacturers to consumers in production and distribution, leading to price increases and heavier burdens on the public. If Prime Minister Yassin reintroduces it, GST would be revived after two years.

Malaysia has alternated between GST and the Sales and Services Tax (SST) depending on economic conditions. SST is levied only on final sales goods, so from the perspective of businesses and consumers, the tax burden is considered lighter than GST. Due to reduced revenue from falling oil prices, GST was introduced in April 2015, but in May 2018, former Prime Minister Mohamad Mahathir, who returned to power, abolished GST and reinstated SST.

The Malaysian government began considering reintroducing GST due to worsening fiscal conditions. Since the regime change in March and the increased economic burden from COVID-19, opinions supporting the need to reintroduce GST have gained traction. It is also forecasted that introducing GST would secure additional annual tax revenue exceeding 40 billion ringgit (approximately 11.334 trillion KRW).

Malaysia implemented a movement control order from March 18 to May 3, banning all foreign entries and shutting down almost all businesses except grocery stores and pharmacies. According to Prime Minister Yassin's special address on the 1st, economic losses due to the movement restrictions amount to 2.4 billion ringgit (approximately 680 billion KRW) per day. The cumulative loss has reached 63 billion ringgit (approximately 17.851 trillion KRW). If the movement control order continues for another month, an additional loss of 35 billion ringgit (approximately 9.917 trillion KRW) is expected.

Experts warn that the prolonged situation could worsen Malaysia's economy beyond the 1998 financial crisis. They argue that securing tax revenue is a priority for fiscal soundness. Former Treasury Secretary Irwan Sri Abdullah stated in March, "GST should be imposed at a rate of 3-4% by next year." The Malaysian Institute of Economic Research (MIER) advised reintroducing GST at a reduced rate of 3%. A representative from the institute emphasized, "SST can never secure as much tax revenue as GST."

Recently, Abdul Aziz, president of the Malaysian Association of Tax Accountants (MATA), joined the call, arguing that GST reintroduction is necessary to sufficiently fund the national treasury.

However, public reaction to the GST reintroduction is negative. David Lee, a driver for the ride-sharing service Grab, said, "With foreign tourists unable to enter, if GST is introduced, Malaysian citizens will bear all the burden," adding, "Instead of collecting more taxes from the public, the system should be reformed by preventing corruption and cutting unnecessary expenditures." Kak-Keng, a self-employed individual, said, "Although the national finances are poor due to COVID-19, now is the time for policies to ease the burden on the lower-income class," and stressed, "If GST is reintroduced, support measures for low-income groups and self-employed people should be implemented simultaneously."

Raja Rasiah, a distinguished professor at Malaya University, stated, "At least a 2.5% GST should be introduced along with policies such as subsidies for low-income groups."

This content was produced with the assistance of AI translation services.