- 8 months ago
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On July 1st the government will implement a revised Sales and Services Tax—raising the rate for select sectors and certain imported goods. It’s part of Putrajaya’s broader push to strengthen Malaysia’s fiscal position by widening the tax base. But will the move strike the right balance between revenue generation and public burden? And in defining what’s “non-essential,” who ultimately decides what Malaysians can afford to consume? On this episode of #ConsiderThis Melisa Idris speaks with Dr Veerinderjeet Singh, Senior Adviser on Tax Policy at KPMG Malaysia and Vice Chair of the Global Tax Commission of the International Chamber of Commerce.
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00:00hello and good evening i'm melissa idris welcome to consider this this is the show where we want
00:15you to consider and then reconsider what you know of the news of the day on july 1st the government
00:21will implement a revised sales and services tax raising the rate for select sectors and
00:28certain imported goods it's part of putra jaya's broader push to strengthen malaysia's fiscal
00:34position by widening the tax base but will the move strike the right balance between revenue
00:40generation and public burden and in defining what's non-essential who ultimately decides
00:47what malaysians can afford to consume so joining me on the show to discuss this further i have dr
00:53rain digit singh who is a senior advisor on tax policy at kpmg he is also the vice chair of the
01:01global tax commission of the international chamber of commerce based in paris rain digit thank you so
01:06much for being on the show with me today the government says that this is all about strengthening
01:12the malaysia's fiscal sustainability in your view at this juncture of malaysia's economic reforms
01:21i'm just wondering is this the right time for us to be expanding the sst and is it the right tool for
01:27that objective thank you um well actually no time is the right time if you honestly ask the question
01:34right and but the fiscal consolidation approach that the government had started to embark on is
01:42something that is needed for a country we all know this but sometimes we tend to forget it right
01:48uh because we look at the impact on our pockets and therefore we get very uh personal about
01:54everything um so question is it has to be done and also remember we have the fiscal transparency act
02:02and that also puts certain types of um uh let's say targets kpis on the on the government in terms of
02:11its fiscal management of the economy uh so i think what the government is trying to do is consolidate
02:18things move um you can always say that they could do it next year uh they could do it but the point is
02:27there is a fiscal deficit there is a clear objective that we need to reduce the deficit and this is one of
02:33the ways in which it is being done and we always expected that it will be widened in scope and i also
02:42would like to point out one thing now roughly you'll find that this current scope of the sst in terms
02:49of the coverage of goods and services is now roughly equivalent to what it was under gst all right number one
02:57and um so when people say we we don't collect enough compared to the gst days we will collect enough
03:05now after your body's all in it's just that we find it uh the timing we find the issue with the timing
03:14so i think the point is um if we had the luxury of time if the government the luxury of time we could
03:21always do this a year or two later as the economy evolves but remember the economy has also suffered
03:29a number of uh issues globally as well so those are the challenges so i i just want to um come back
03:37to the point about the public reaction i mean we've seen a lot of public reaction asking why the government
03:43didn't just bring back gst so this this debate this framing of sst versus gst i'm wondering what you
03:51think as a text expert is that framing helpful is it is it unproductive is it missing the point
03:57how would you describe how the sst expansion is being discussed in the public sphere right now
04:03right i think if you want to have a word a discussion on gst versus sst you'll probably have another
04:09we may have to another show to discuss primarily that but let me try to summarize this um the issue with
04:16the the the sst right now is because of the fact that it's multi-state it cannot it can lead to
04:23cascading of taxes along the way because there's no input output mechanism like what there was under
04:30gst that's that's a fundamental point so the the government politically has said it very clearly
04:38and we in those of us who are practitioners uh we know the government's view that gst is not on
04:46and therefore we have to work with sst so i accept that fact but when you work with sst you need to
04:53reduce the cascading right and therefore we in the in terms of the government and the advisors
05:01we decided to look at a business to business exemption which is never there under sst but that's
05:09the kind of things that the that the government has started to do and they started doing this
05:14actually from the time they brought back sst there was a and a move to look at business to business
05:22exemption so that you will soften the cascading of taxes cascading taxes is simply that one party will
05:30then add on the tax to a person's production cost and then put a profit margin on total and then so
05:35and so on and so forth uh and so so the government has chosen to go on what we call a targeted approach
05:42and a targeted approach becomes complex because you got to look at who is impacted who is not
05:49heavy have unintended consequences and that's why the government took quite a bit of time and that's
05:55why the delay was there trying to ensure that the well that they don't have unintended consequences
06:02right now invariably there will always be some consequences so this is where i think government
06:06has expressed the view that they are willing to listen and perhaps look at how they can
06:11manage this and perhaps give some concessions here in the in the from from a tax administration
06:18perspective what do you think or what are you most concerned about in terms of uh consequences and
06:24may i also ask you what concerns you've heard from the business community about adjusting to these new
06:29rates and the new sectors that are now included yeah one of the one of the gripes anyone would have
06:35is that that you don't start in the middle of the uh with uh major changes and perhaps you should start
06:42at the beginning of of the of the calendar year and because that allows businesses companies to budget
06:49better most companies are looking at a december year end right so that's one issue that's why it does have
06:56a impact on various items depending on who you are depending what you buy depending what you sell
07:02it now adds on to a cost but remember one thing as well some would argue that if it adds on to your
07:09costs you have more to pay out you are actually not the one bearing the sst the sst ultimately is born by
07:18the end the consumer um so businesses need to perhaps be mindful of the fact that yes we all know
07:26inflationary aspects will be there we know inflation will go up government is well aware of that any
07:33increase in the gst or sst will lead to some inflationary impact the challenge however is that
07:41businesses are just saying it is too short a time for them to adjust their processes timing so the timing
07:48perhaps could have been done better but remember that this is part of last year's budget so it
07:55actually was meant to come into effect because of last year's numbers that we were talking about
08:01so so at the end of the day the longer you delay your fiscal deficit uh management becomes uh perhaps
08:11pushed to the you kick the can down the road so it's a chicken leg situation is this the right time is
08:17it a wrong time that's never a right time but at the same time one can always say that you can defer
08:22to next year since you already taken six months off so and he's only starting now so perhaps we can bear
08:28with it that could be a better option but yes inflationary aspects are real that's and no one can
08:35gripe with that but i think businesses need to understand that yes the end result is that there will be
08:41increase in your cost and consumers will ultimately pay for it that's the reality of life and we have
08:47to accept that any consumption tax will lead to that inflationary impact so the main concerns of
08:53businesses was about inflationary impact but then it means to them increasing their production costs
09:00and therefore charging more and that i think will happen because we don't have price controls on all these
09:06items current government cannot control prices of goods and services um otherwise we are not
09:13practicing capitalism at its uh it's free market at work right right can i just ask you if we were to
09:21look at tax reform of the country we've spoken a lot about the con the government has spoken a lot about
09:28the need to widen the tax base and i'm wondering if the aim is to have a more um efficient and equitable
09:36uh and kind of future ready tax system what is still missing from malaysia's overall tax tax reform
09:45approach the current approach today is that working and what should the next step be um after ssd expansion
09:53well i think at the end of the day you look at the current tax system that we have both direct
09:58indirect taxes actually we have all the relevant taxes one needs to run the system right and so there's
10:06nothing new you can add on at this stage in life uh because we can't think of a wealth tax we can't do
10:12all that because that's for developed nations it's complicated and for different objectives so we have
10:17actually all the various types of taxes what is happening is because we all know there's a narrow base
10:24so we are seeing a widening of uh perhaps personal taxes over time it has happened over the last five years
10:30um the high income group pays a bit more and so on and so forth we looked at the dividend tax which is
10:36a minuscule measure last year two percent but those are the little things being done which sometimes
10:42don't add numbers right the dividend tax for example is a little bit of a misnomer the two percent doesn't
10:48add much so the point is we have it we have the type of taxes our problem is the informal economy
10:58and therefore our our our issue should be tax administration in tax enforcement how are we
11:05reaching out to bring the informal economy into the net there are some ways of managing that initially
11:13and uh one of them is perhaps what we call a presumptive tax which uh obviously will take
11:18some time to explain but uh basically it's a simpler system for the smaller companies or businesses to
11:26come into the net and then ultimately they graduate over time and they can then go into the full-blown
11:31system so there are little administrative measures that can be taken but if you're looking at the type of
11:38taxes we have it all and also i am one of those who said very clearly when gst came in years ago
11:45that do not be surprised that the rate will keep increasing over time right and that is what
11:51consumption taxes are and if they keep increasing which they would as can be seen in many countries
11:59uh you bring in if it brings in adequate revenue then you may see a reduction in some of your corporate
12:05taxes and your personal tax rates but that is dependent on how well we what revenue we recover
12:12so so i think what we now have is a balancing game over time looking at what we earned how we do it
12:20solve some of these little issues along the way and then look at the numbers that are coming in and
12:26then manage it accordingly by by administrative measures which could mean increasing some tax rates
12:33reducing some tax rates but more importantly bringing in the informal economy and this is where
12:40e-invoicing is the game changer if i say a big if if it's implemented efficiently and effectively
12:50that's how i i see it right thank you so much for sharing that analysis with us i really appreciate
12:56your time dr rindajit singh senior advisor on tax policy at kpmg malaysia we're going to take a quick
13:02break here and consider this we'll be back with more stay tuned
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