Published August 25, 2009

KL delays plans to impose GST

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(KUALA LUMPUR) Malaysia may not impose a goods and service tax (GST) in its 2010 budget, further delaying plans for its implementation, The Edge Financial Daily said yesterday, citing unidentified sources.
Buying time: Malaysia shelved plans to implement GST in 2007 but has recently mulled plans to bring it back due to declining oil revenues

One source said that new Prime Minister Najib Razak, who is also the finance minister, could announce a timeframe for the introduction of GST when he tables the budget in October.

The news comes after the International Monetary Fund (IMF) cautioned Kuala Lumpur earlier this month not to delay plans to introduce GST to boost revenues in an economy where the deficit could hit 7.7 per cent of gross domestic product (GDP) this year.

Malaysia shelved plans to implement GST in 2007 but has recently mulled plans to bring it back due to declining oil revenues. The IMF said that Malaysia's budget deficit in 2008, excluding oil revenues will be 11 per cent of GDP.

Analysts said that imposing a GST may not be politically helpful for the government, which faces its first major recession since the 1998 financial crisis and is struggling to build up support after unprecedented losses in last year's general elections.

Another source cited by The Edge said that the government would instead expand a 5 per cent service tax to cover certain personal and business banking services provided by financial institutions.

'Banking is somewhat a daily affair to most people. If they start to pay 5 per cent tax from next year onwards for certain financial services, they would slowly gain insights into the need for a value-added tax regime,' said the second source. -- Reuters