Abolished in 3 years- the new government in Malaysia has pulled the plug on GST which was introduced in the country in 2015 despite warnings from credit rating agencies like Moody's.
And unlike India, Malaysia's GST structure was relatively simple. It has a single rate of 6 percent with over 30 daily use items being exempt from the tax. On the other hand, India has a 5-tier structure with taxes ranging from 3 percent to 28 percent. However, what India and Malaysia had in common was the anti-profiteering authority among other things.
GST was, at some level, unpopular in Malaysia from the beginning. The Malaysian government rolled out GST mainly as a source of revenues in 2015 as crude oil prices were below $40 per barrel. Malaysia relies heavily on oil exports. But, the move ended up stoking inflation and had an adverse impact on consumer spending.
So, safe to say Malaysia's GST failure does have some lessons for India, but the GST structure and demographics are vastly different. However, India's GST regime still has some wrinkles that need to be ironed out.
So does Malaysia’s GST rollback have lessons for us here in India? GST was made an election issue during the Gujarat and the Karnataka polls, with the congress branding it the Gabbar Singh tax. As we head to 2019, is this a vulnerability the opposition could exploit? What needs to be done to ensure GST compliance is simpler especially for SMEs.
Pratik Jain of PwC India, MS Mani of Deloitte India, Rohan Shah, Tax Expert, Mauvin Godinho, Member- GST Council and Thomas Isaac, Finance Minister of Kerala discuss the above issues.
“Malaysian decision seems to be more political than economical. Obviously, at that point of time when GST came in 2015 oil prices were around $37 per barrel. Now it is around $80 per barrel so in that sense they have that confidence that they will get that revenue from oil and GST is not required. Couple of things that perhaps did not work there one was they could not control the inflation which is again different from what is happening in India. The second is lot of small businesses had to shut their shops in Malaysia and that is the big learning for us that if we want our GST to be successful we have to be very careful about what is the impact on smaller businesses and return simplification,” Pratik Jain said.