The Goods and Services Tax (GST) is a multi-stage economic sales tax on goods and
services where it is possible to raise taxes for each level of supply in the production chain up
to the market stage of issuance. Simultaneously, suppliers are authorized to make refunds of
the GST that have incurred on business process. The underlying of GST Malaysia is its self-
regulating mechanism which allow the companies to demand their input tax credit by
automatically deducting from their account scheme. GST was initially announced in 2005 for
implementation in 2007 yet it is deferred as more preparation needed to be done. The tax
system was then announced in Budget 2014 to substitute sales and services tax at that
moment. GST was officially effective in April 2015. The GST rate was 6% and it is 80% to
90% compliance from a taxable person. The decision of the Malaysian government moving
from Sales and Service Tax (SST) to GST is one of its effort to make Malaysia a high-income
nation, achieving its tandem in Vision 2020.
GST had a broader coverage on taxable items compared to SST. That is why GST will
provide nearly twice as much tax income compared to the previous tax regime. Under the
GST framework, approximately 472,000 companies are taxable while only 80,000 businesses
are registered to pay SST. In terms of taxable products and services, SST has in the
Consumer Price Index (CPI) a total of 8,445 goods which could be exempted, while only 545
goods were excluded from GST. Although the tax system benefits the revenue and profits of
the country, Malaysia’s introduction of GST received criticism and protests from Malaysia in
general because it raises the cost of living. In 2018, the opposition coalition against the
government made a manifesto to abolish GST to gain voters in the 14th general election of
Malaysia. The majority were in favour of abolishing GST since the increased tax revenues
did not show any improvements in the nation’s fiscal condition nor debts. GST
implementation concluded on 1st September 2018 and was officially replaced by SST.
In 2020, the global economy was severely impacted by the COVID-19 pandemic. The
major outbreaks of the virus have become a threat with profound repercussions for the
economy. Malaysia’s economy was dampened by the resulting Movement Control Order
(MCO) regulation. During the economic downturn, the government of Malaysia took many
measures to ease the burden on its citizens. These include the decrease of service tax on
lodging and hotel services from 6% to 0%, extension of the submission of sales and service
tax, provide additional service tax easements to the tourism sector, and temporarily deferring
import and sales taxes to promote spending. In accordance with the reduction of government
collection, initiatives such as fiscal stimulus packages costing RM20 billion to reduce the
effect of coronavirus on Malaysia’s economy were adopted by policymakers. On 27th March
2020, the Prime Minister has revealed PRIHATIN Economic Stimulus Package (ESP) to
accommodate the ones who are affected the most during this COVID-19 pandemic. In
addition, the Malaysian Government has announced RM10 billion in conjunction with the
Supplementary Initiative Package (Kita Prihatin) on 23rd September 2020 in step to heighten
the economy and includes the Bantuan Prihatin Nasional (BPN) 2.0 as well as the GKP
Prihatin Special Grant, and Wage Subsidy Programme 2.0. Furthermore, The Kita Prihatin
package assigns four categories, first group the bottom specifically for (B40) 40 percent,
second the middle group specifically for (M40) 40 percent along with beginner and medium
enterprises and regional employees in various sectors.
Due to the events listed above, 50.6% of direct tax contributed to the national revenue
projected to have RM115.1 billion, 14.6% from RM134.7 billion shrink in 2019,
fundamentally because of the unstable economic activity that has been impacting the
businesses and individuals’ incomes together with the decreasing oil price assumptions. In
addition, indirect tax, that contributes 16.8% to overall revenue, is projected to drop by 19.4%
in comparison with the initial assumption of RM47.3 billion. SST is forecast to come up less
