KUALA LUMPUR, Oct 13 – The government has again postponed the implementation of the Goods and Services Tax (GST) indefinitely, in a move analysts say signals the possibility of early general elections.
Analysts said that the government’s lack of political will to push through the GST indicate that elections could take place early next year.
“Political will may also be lacking to push through the GST, as elections may take place sometime next year,” Standard Chartered economist Alvin Liew told newswire Reuters.
“This opens the door for a possible early election next year,” OCBC Bank economist Gundy Cahyadi also told Reuters. “What we must note though is that the GST will get implemented, it is only a matter of time. The government obviously is looking for more time to prepare private companies for the move and get support from the people.”
The postponement of the GST comes as the government is embarking on a slew of big ticket projects in its Economic Transformation Programme such as the RM43 billion new KL MRT which are expected to boost the economy and possibly increase the feel good factor ahead of polls.
In a three-paragraph statement released to the media this evening, the government said the GST was deferred to enable the government to engage inclusively all segments of the people.
"The Government would like to announce the postponement of the implementation of the Goods and Services Tax (GST).
"This is to enable the Government to engage inclusively with all segments of rakyat pertaining to the GST. The Government will take into account the interest and welfare of the society to ensure the implementation of GST is well received," the statement said.
But the government said the GST was important for the country's long term economic growth.
"Notwithstanding the postponement, the Government recognises the importance of GST in ensuring a strong and sustainable fiscal position to support the long term economic growth," it added.
Financial analysts reacted negatively and were critical of the government’s move.
“It’s no big surprise. Even though nobody was expecting implementation, the fact that they have not even given a timeline is a little bit of a disappointment.
“It’s probably necessary from a political perspective but those who are looking for a more credible fiscal consolidation commitment may be a little bit disappointed. If you are a sceptic of Malaysia, this will probably fuel the cynicism,” Kit Wei Zheng, an economist with Citigroup told Reuters.
The GST bill was tabled for reading in Parliament in December last year but its second reading, originally planned for March was postponed due to fierce political resistance.
It was originally expected to have been implemented by the middle of 2011.
The tax was expected to help the government reduce the federal budget deficit, which came in at 7.6 per cent of GDP last year, and grow revenue by widening its tax base as currently only about 10 per cent of Malaysian workers pay income tax.
Government revenue is heavily dependent on taxes and dividends paid by Petronas, which make up over 40 per cent of its income. The national oil company’s dividend payout ratio has ballooned from 39 per cent of profits in 2006 to 74 per cent in the 2010 financial year raising concerns that its ability to reinvest could be affected.
Some members of the public have approved the proposal as it is expected to spread the tax burden more evenly across the population. There is some expectation, however, that income tax rates should come down if GST is introduced.
Others have criticised the proposal, saying that the government should first address revenue leakages and wastage before introducing new taxes to boost its income.
