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The Star
5 days ago
- Business
- The Star
Experts say: Don't tie GST to wage threshold
PETALING JAYA: Setting a RM4,000 minimum wage as a condition for reintroducing the Goods and Services Tax (GST) is not economically sound and inconsistent with Malaysia's broader national goals, say experts. According to tax expert Datuk Koong Lin Loong, the government should focus on strengthening the country's tax fundamentals instead of tying GST to an arbitrary wage threshold. 'RM4,000 is still a long way off, especially for unskilled workers. Raising wages without addressing root causes could backfire,' he said. Koong noted that over 50% of Malaysia's revenue is from direct taxes – mainly corporate and personal income tax – but this model has limitations, especially for a nation aiming to attract more foreign investment. 'GST, introduced in 2015, was a more efficient and refined form of indirect taxation. Relying heavily on direct tax is not sustainable,' he said when contacted. Koong added that claims of GST burdening the poor are often overstated. Under the previous system, essential items such as school uniforms and basic foods were zero- rated. A household earning RM1,700 and spending mostly on essentials would pay only around RM100 a month in GST – an amount offset by current cash aid programmes, Koong said. 'In contrast, under the Sales and Service Tax (SST), many items consumed by lower-income households are taxed at 5% to 10% and businesses can't claim back input tax, making products costlier,' he added. Koong stressed that GST is a consumption-based tax that allows greater control – those who do not buy non-essentials pay less tax. 'If you earn RM1,700 but avoid luxury items, your tax exposure remains low,' he said. Koong also noted that GST's single invoice and input-output credit system offer greater transparency and efficiency compared with SST, which lacks such mechanisms and often involves multiple invoicing. On Sunday, Prime Minister Datuk Seri Anwar Ibrahim said the government is not ready to implement GST as it will unfairly burden low-income Malaysians. He said it will be feasible to implement GST if the country's economy grows stronger and the minimum wage is RM4,000 and above. Anwar said SST targets imported and luxury goods rather than daily necessities. Prof Dr Wong Chin Yoong, from Universiti Tunku Abdul Rahman's Teh Hong Piow Faculty of Business and Finance, Department of Economics, said the RM4,000 minimum wage benchmark is arbitrary and economically unjustified. 'Why RM4,000? Why not RM3,000 or RM2,500? It seems like an ad hoc figure with no clear basis,' he said. Prof Wong added that tying GST to wage levels contradicts Malaysia's goal of becoming a high-income nation and top-30 global economy by 2030. 'At the current pace – RM300 increments every two years – it would take 15 years to reach RM4,000. That would delay GST until 2040, well beyond our high-income target,' he said. Prof Wong said Malaysia is already economically and fiscally prepared for a value-added tax, noting that over 90% of taxable manufacturing goods are now covered under the expanded sales tax. 'Despite broader coverage and higher rates, SST still generates less revenue than GST. That limits funding for development and welfare programmes,' he added. Commenting on the Prime Minister's recent remarks, SME Association president Chin Chee Seong said the RM4,000 minimum wage threshold set as a condition for reintroducing the GST appears arbitrary and could delay tax reform for decades. 'It's unclear where the RM4,000 figure comes from. The real issue is that the government urgently needs revenue to support development and essential services,' he said. Chin added that GST allows businesses to claim input tax, reduce costs and improve competitiveness. In contrast, SST and rental costs become direct business expenses, which puts local manufacturers at a disadvantage compared with countries using GST, he said. Chin also questioned the idea that only high-income nations should implement GST, pointing out that countries like India, Thailand and Indonesia have already adopted it. 'Even a 4% GST is manageable. The argument that the poor shouldn't pay tax is flawed. 'Instead, targeted aid like the Rahmah Cash Aid (STR) could help lower-income households manage the impact,' he added. The Malay Chamber of Commerce Malaysia, however, supports the government's cautious stance on reintroducing the GST, calling it a pragmatic move that reflects concern for the people's economic well-being. Its secretary-general Abd Halim Husin said GST should only return once the economy strengthens and wages rise, noting that a fair, transparent and efficient tax system is vital for investor confidence and small and medium enterprise (SME) sustainability. 'GST is more comprehensive and less prone to leakage than SST, but its implementation must not burden small businesses or consumers. 'With the economy still recovering and operational costs high, SST remains the better option for now,' he said. However, Abd Halim believes a future transition to GST is necessary once economic conditions and SME support structures improve. He urged the government to prepare a detailed transition plan that includes automation incentives, digital training and tax compliance support to help bumiputra SMEs adapt.
The Star
06-05-2025
- Business
- The Star
Experts: Move will address issue of transhipment
PETALING JAYA: The government's decision to centralise the issuance of non-preferential certificates of origin (NPCOs) for exports, especially to the United States, is meant to protect the country's economic integrity and international reputation amid rising global trade tensions, say experts. Prof Dr Wong Chin Yoong from Teh Hong Piow Faculty of Business and Finance, Department of Economics, Universiti Tunku Abdul Rahman (UTAR), said transhipment activities provide no tangible benefit to Malaysia's economy. He said transhipment neither creates value-added production nor generates meaningful employment opportunities. 'It is certainly not helpful at all when it comes to our export competitiveness. 'I would even argue that transhipment resembles a shortcut for Malaysian companies to profit without putting any effort into meaningful activities, other than simply changing the rules of origin tag,' he added. He warned that such a business model could undermine the spirit of entrepreneurship in Malaysia over time. Wong also said that in the current climate of geoeconomic tension between China and the United States, allowing transhipments could further damage Malaysia's international reputation. 'I just don't see any benefits in continually allowing transhipments,' he added. Transhipments using Malaysia's entry and exit points refer to goods being brought into Malaysia and then quickly re-exported, often without any significant processing, to conceal their true origin. This practice is sometimes used to bypass international trade restrictions or tariffs, potentially damaging Malaysia's trade reputation and exposing the country to sanctions. As a result, the authorities are tightening controls on such practices. International Islamic University Malaysia Department of International Relations Asst Prof Dr Lee Pei May said the move to appoint Miti as the sole agency to issue the certificates signals Malaysia's firm commitment to ensuring that goods exported to the United States genuinely qualify as Malaysian-made. 'It shows that Malaysia is serious about addressing the issue of transhipment and ensuring that all products bound for the US market contain sufficient local content,' she said. She acknowledged that some Malaysian exporters who may have benefited from relabelling foreign goods as Malaysian-made could face repercussions under the new policy regime. However, she noted that tighter controls and audits will help ensure that only products with genuine value-added input from Malaysian firms are exported. 'With Miti now solely responsible for issuing certificates for US-bound shipments, the ministry will likely face a heavier administrative burden, which could lead to longer processing times,' she said. To address this, Lee stressed the need for clear and efficient standard operating procedures (SOP). 'Miti must strike a balance, being stricter without compromising on efficiency. A well-defined SOP will be key to ensuring smooth implementation,' she added.
