Malaysia may reintroduce GST, says PM Ismail Sabri – how will car prices be affected compared to SST?

Malaysia is keen on reintroducing a goods and services tax (GST) as it attempts to expand its revenue base and carry the weight of public subsidies. The move to reimplement GST, which replaced the sales and service tax (SST) in April 2015 but was then scrapped in favour of SST in September 2018 when the Pakatan Harapan government took over the reins, has been mulled before, but things are starting to sound a bit more concrete now.

In an exclusive interview with Nikkei, prime minister Datuk Seri Ismail Sabri Yaakob said the country was deliberating the move. He said that the government is aware of the negative perception surrounding the GST, but added that it had limited options for replenishing the country’s coffers.

“We lost RM20 billion in annual revenue when we abolished the GST and replaced it with the old SST. No other country in the world has reverted back from GST to SST, except for Malaysia,” he told the publication.

Back in March, the finance ministry was said to be evaluating the reintroduction of GST as part of major fiscal reforms to strengthen the country’s revenue capacity. Bank Negara recently backed the idea of the GST being reinstituted, saying that it would relieve the heavy financial burden faced by the government.

Malaysia may reintroduce GST, says PM Ismail Sabri – how will car prices be affected compared to SST?

The 6% consumption tax generally proved to be unpopular, with the public attributing it as a reason for rising living costs. Ismail Sabri said that this time around, the government would aim for a GST rate that was not so high that it would burden the people, but not so low that it “defeats the purpose of expanding tax revenue.”

He said the government would formulate ways to educate the public on the importance of the GST and transparent tax collection. “If we are going to reintroduce the GST, we have to educate the people to accept it,” he explained.

From an automotive viewpoint, it has been suggested that the reintroduction of GST could reduce car prices by between one and six per cent if it replaces the SST, which is currently charged at a rate of 10%. According to the Malaysian Automotive Association, the 2015 implementation of GST was proven to reduce car prices by as much as 6%.

Malaysia may reintroduce GST, says PM Ismail Sabri – how will car prices be affected compared to SST?

However, as we reported late last year, the topic of car price adjustments in relation to new tax regimes is far more nuanced than what some observers will lead you to believe. While prices by and large did decrease somewhat when GST superseded SST in 2015, there were also some increases. And, there were also large-scale price drops when SST was reimplemented in 2018, so it’s not always set in stone.

As a quick recap, the GST is a value-added tax in which tax is paid in every stage of the business transaction versus SST’s one-time tax, which is paid by the manufacturer/importer. Despite that, the total amount of tax paid under GST is actually lower due to its input tax claim mechanism. In essence, the final GST quantum is borne by the consumer versus the SST, in which the quantum is paid by the importer or manufacturer.

Of course, in a hypothetical – and unlikely – scenario in which GST were to be introduced soon, with SST currently not being applied on new cars, GST coming in would see car prices going up, though not as high as before SST exemption was introduced, which seems like a very long, long time ago. Heck, we might even see another extension of the SST exemption, which is supposed to end on June 30. You never know, and never say never. Until July 1, at least.

For a more detailed look at the differences between the two tax regimes in relation to the automotive sector, read our comprehensive story on the matter from 2015. It will give you a better understanding on how GST affects car prices. Also, what do you think of the proposal to reintroduce GST on a wider scale, beyond just cars. Yay, or nay? Share your thoughts with us in the comments section.