Malaysia to Impose Tax on Goods, ServiceUnveiled during a presentation of Malaysia's budget, a prime minister of Malaysia, Mr.Najib Razak, would introduce a long-delayed tax on goods and services in 2015 and gradually cut costly fuel subsidies to fix Malaysia's finances after a large budget deficit.
Mr. Najib used the 2014 budget to push through some reforms to avoid a potential credit-rating downgrade and to try to balance the budget by 2020. Malaysia benefited from cheap global credit following the global recession, growing more than 5% annually between 2010 and 2012. Much of its growth was fueled by credit, including large government borrowing to fund ambitious infrastructure projects, such as an urban railway system. The government ran up a large budget deficit, now 4% of gross domestic product, which it funded largely through local currency bonds.
With expectations that the U.S. Federal Reserve will soon pull back on its easy-money policies, this model is looking unstable. Foreign investors this summer pulled out of emerging markets, including Malaysia, on expectations global rates will soon rise. That leaves Malaysia, which relies on foreigners to fund almost half of its local government bond market, under pressure to show it is reining in its budget deficit and curbing government debt.
Malaysia's inflation rate in September rose 2.6% from a year earlier, staying within the central bank's comfort range of 2% and 3% despite a fuel-price increase during the month. So now it is the best time to introduce a goods-and-services tax as inflation is low. the proposed 6% goods-and-services tax, which would be effective April 1, 2015, would replace the current sales tax and services tax. It won't be imposed on basic food items, nor on transport systems. Moreover, the government also announced reductions in personal- and corporate-tax rates.
Furthermore, the government needs to channel subsidies only to the low-income population while charging higher fees for food, fuel and cooking oil to those who can afford it. The goods-and-services tax as a way to boost government revenue and reduce its reliance on dividend payouts from the state-run oil-and-gas company.
The government expects revenue to edge up to MYR224.1 billion next year from this year's MYR220.4 billion, helped by expected economic growth of 5.0%-to-5.5%. That in turn should help reduce the deficit. Malaysia's economy grew 4.1% in the first six months of this year.
Source : http://online.wsj.com/news/articles/SB10001424052702304069604579157532780090974