Malaysia has slashed Goods and Service tax from 6 percent to zero percent.
The change will be implemented from 1 June this year.
The move comes as questions are raised about Singapore’s impending GST hike by 2 percentage points.
Across the Causeway, the removal of GST was down to a promise by newly-elected prime minister Mahathir Mohamad that he would remove the consumption tax to address rising cost of living.
Zeti Akhthar Aziz, the former central bank governor and presently a senior adviser to the Malaysian government, said that Malaysia would be able to reduce its fiscal deficit by controlling expenditure in the absence of GST.
Ms Zeti said that the government will re-prioritise projects, increase efficiency and reduce wastage in the public sector.
In Singapore, the GST hike here to 9 percent is set to take place sometime between 2021 to 2025.
This was announced by Finance Minister Heng Swee Keat in this year’s Budget (Feb 19).
He said that said the GST increase is “necessary because even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap”.
The exact timing will depend on three factors: the state of Singapore’s economy, how much the country’s expenditures grow, and how buoyant Singapore’s existing taxes are.
Mr Heng said he expects that the Government will need to raise GST earlier rather than later.
However, Workers’ Party Secretary-General Pritam Singh has questioned why the government is generating so much revenue, yet needs to burden Singaporeans with price hikes.
“The picture for the immediate future does not appear to be one of a government needing money to stay afloat or needing to tax the population, as a result raising the cost of living”.
He noted that in the first two years of its five-year term (FY2016 and FY2017), the Government had accumulated a Budget surplus of S$15.7 billion.
“(This) could potentially cover two more Pioneer Generation packages of about S$8 billion dollars each, covering almost an additional one million more elderly and this is only taking into account the accumulated surplus out of two of the five years of this Government’s term.”
Mr Singh said that price hikes need to be examined with regards to “future surpluses of many government-linked companies and statutory boards”.
Giving the example of the water price hike, he said that the reserves of Singapore’s national water agency, PUB, has “increased consistently from around S$3 billion in 2007 to more than S$5 billion in 2016”.
Economist and Associate Dean of Executive Education at the Lee Kuan Yew School of Public Policy Donald Low, said there isn’t a need for the government to raise GST at all from its current 7 percent, though there are reasons why the government has chosen to do just that.
“The size of the Budget surplus for FY 2017 is stunning. $$9.6 billion is nearly enough to finance a large ministry, like the Ministry of Health.
The Finance Minister says it’s due to exceptional factors, and does not represent a structural surplus. But what is certainly structural is that the current rule of spending (only) up to 50 percent of the net investment returns (NIR) means that the reserves are still growing quite considerably every year.
The question naturally arises: why can’t we tap more of the net investment returns to finance increasing needs, instead of resorting to a GST increase? After all, what or who are we saving for, considering that future generations of Singaporeans are likely to be better off than the current generation of Singaporeans entering retirement.”
Singaporeans have also complained about the impending GST hike.
Many have questioned the rationale for the increase, in the wake of price hikes of basic necessities such as water and electricity.