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GOVERNMENTS across the world have expended significant capital in the fight against Covid-19 and will have little choice but to expand their tax base. Malaysia, which has a fairly narrow base to start with, will need to look at the overall structure of its tax system in the longer term.

As the Organisation for Economic Cooperation and Development has recommended, a broader review of Malaysia’s tax system will be needed to address the fiscal imbalance caused by the pandemic. All options should be on the table and thoroughly evaluated, and Goods and Services Tax (GST), as you expect, will form part of that discussion.

In the medium to longer term, replacing the Sales and Service Tax (SST) with GST from a tax policy perspective makes sense. There are significant challenges to widening a single stage tax such as the SST.

Recent attempts to widen the scope have resulted in a lot of unintended consequences, such as multiple levels of tax being paid and confusion on scope. Any decision to widen the SST will need careful consideration.

Reintroducing the GST will remove all current challenges faced with the SST and will give the government a lot more scope to widen the tax base. That being said, as Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed has noted, timing is critical, and it is important that businesses are given time to stabilise post-pandemic before needing to implement new tax systems.

This article was contributed by Deloitte Malaysia indirect tax executive director Senthuran Elalingam.

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