Experts say: Don't tie GST to wage threshold

The Star

18-06-2025

PETALING JAYA: Setting a RM4,000 minimum wage as a condition for reintroducing the Goods and Services Tax (GST) is not economically sound and inconsistent with Malaysia's broader national goals, say experts.
According to tax expert Datuk Koong Lin Loong, the government should focus on strengthening the country's tax fundamentals ins­tead of tying GST to an arbitrary wage threshold.
'RM4,000 is still a long way off, especially for unskilled workers. Raising wages without addressing root causes could backfire,' he said.
Koong noted that over 50% of Malaysia's revenue is from direct taxes – mainly corporate and personal income tax – but this model has limitations, especially for a nation aiming to attract more foreign investment.
'GST, introduced in 2015, was a more efficient and refined form of indirect taxation. Relying hea­vily on direct tax is not sustainable,' he said when contacted.
Koong added that claims of GST burdening the poor are often overstated.
Under the previous system, essential items such as school uniforms and basic foods were zero- rated.
A household earning RM1,700 and spending mostly on essentials would pay only around RM100 a month in GST – an amount offset by current cash aid programmes, Koong said.
'In contrast, under the Sales and Service Tax (SST), many items consumed by lower-income house­holds are taxed at 5% to 10% and businesses can't claim back input tax, making products costlier,' he added.
Koong stressed that GST is a consumption-based tax that allows greater control – those who do not buy non-essentials pay less tax.
'If you earn RM1,700 but avoid luxury items, your tax exposure remains low,' he said.
Koong also noted that GST's single invoice and input-output cre­dit system offer greater transpa­rency and efficiency compared with SST, which lacks such mecha­nisms and often involves multiple invoicing.
On Sunday, Prime Minister Datuk Seri Anwar Ibrahim said the government is not ready to implement GST as it will unfairly burden low-income Malaysians.
He said it will be feasible to imp­lement GST if the country's economy grows stronger and the minimum wage is RM4,000 and above.
Anwar said SST targets impor­ted and luxury goods rather than daily necessities.
Prof Dr Wong Chin Yoong, from Universiti Tunku Abdul Rahman's Teh Hong Piow Faculty of Business and Finance, Department of Eco­no­mics, said the RM4,000 minimum wage benchmark is arbitra­ry and economically unjustified.
'Why RM4,000? Why not RM3,000 or RM2,500? It seems like an ad hoc figure with no clear basis,' he said.
Prof Wong added that tying GST to wage levels contradicts Malaysia's goal of becoming a high-income nation and top-30 global economy by 2030.
'At the current pace – RM300 increments every two years – it would take 15 years to reach RM4,000. That would delay GST until 2040, well beyond our high-income target,' he said.
Prof Wong said Malaysia is already economically and fiscally prepa­red for a value-added tax, noting that over 90% of taxable manufacturing goods are now covered under the expanded sales tax.
'Despite broader coverage and higher rates, SST still generates less revenue than GST. That limits funding for development and welfare programmes,' he added.
Commenting on the Prime Minister's recent remarks, SME Association president Chin Chee Seong said the RM4,000 minimum wage threshold set as a condition for reintroducing the GST appears arbitrary and could delay tax reform for decades.
'It's unclear where the RM4,000 figure comes from. The real issue is that the government urgently needs revenue to support deve­lopment and essential services,' he said.
Chin added that GST allows businesses to claim input tax, reduce costs and improve competitiveness.
In contrast, SST and rental costs become direct business expenses, which puts local manufacturers at a disadvantage compared with countries using GST, he said.
Chin also questioned the idea that only high-income nations should implement GST, pointing out that countries like India, Thailand and Indonesia have already adopted it.
'Even a 4% GST is manageable. The argument that the poor shouldn't pay tax is flawed.
'Instead, targeted aid like the Rahmah Cash Aid (STR) could help lower-income households manage the impact,' he added.
The Malay Chamber of Com­merce Malaysia, however, supports the government's cautious stance on reintroducing the GST, calling it a pragmatic move that reflects concern for the people's economic well-being.
Its secretary-general Abd Halim Husin said GST should only return once the economy strengthens and wages rise, noting that a fair, transparent and efficient tax system is vital for investor confiden­ce and small and medium enterprise (SME) sustainability.
'GST is more comprehensive and less prone to leakage than SST, but its implementation must not burden small businesses or consumers.
'With the economy still recove­ring and operational costs high, SST remains the better option for now,' he said.
However, Abd Halim believes a future transition to GST is necessary once economic conditions and SME support structures imp­rove.
He urged the government to prepare a detailed transition plan that includes automation incentives, digital training and tax compliance support to help bumiputra SMEs adapt.