| December 2014
IS MALAYSIAN GST REGRESSIVE?
only about 12.15% of his total expenditure on zero-
rated item and 63.90% on items subject to GST.
GST is a consumption tax. It is based on the
spending. If the spending is more, then tax will be
more. Low and middle income earners are unlikely
to spend more on non-basic items that are not GST
zero rated or exempted. Even if they did, the volume
is not as high as wealthy people as their purchasing
power is limited. It is usually the wealthy ones who
spend more on luxuries.
Despite of the many unfavorable aspects of GST, the
MalaysianGSTmodel is designed to be a progressive
one. It lessens the impact on Rakyat and at the same
time overcome the inherent weakness of SST.
Even though the Malaysian Model is a progressive
one, the Government has designed a compensation
package to offset any additional tax burden that
might affect the low income Rakyat when GST is
implemented. The offset package includes;
RM300 one-off cash to BR1M recipients as
Individual income tax rates reduced by 1%
to 3% to increase their disposable income –
300,000 tax payers will no longer pay tax.
Families of RM4,000 household income will no
longer pay tax.
Cash assistance under the BRIM is increased
from RM500 to RM650 in 2014 and to increase
it further in 2015.
Chargeable income subject to the maximum
rate of exceeding RM100,000 will be increasing
to exceeding RM400,000. Current maximum tax
rate of 26% will be reduced to 24%, 24.5% and
In Malaysia’s case, the overriding rationale to
introduce the GST is to modernize our tax system
and to overcome the inefficiency of the indirect tax
system in the country. Moreover, GST also provides
the opportunity to enhance fiscal sustainability.
From the studies done by the MOF and the
Customs, it is evident that zero-rating of basic
food, water and electricity(up to certain level) and
exempting the critical sectors such as housing,
public transportation, health, education, land and
financial services including life insurance, has made
the Malaysian Model a progressive one rather than
a regressive one. This is due to the fact that the
Government is not taxing or taxing very lightly
on goods and services on which poor households
spend most of their income.