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| December 2014



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

household assistance.


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.