GST in Malaysia

3804 words (15 pages) essay in Economics

01/12/17 Economics Reference this

Disclaimer: This work has been submitted by a student. This is not an example of the work produced by our essay writing service.

You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.
















On 10th October 2014, The Most Honorable Dato ‘Seri Mohd Najib Tun Razak, Prime Minister and Minister of Finance announced in the Budget 2015 at Parliamentary Assembly with the theme of this 2015 budget is ‘ People’s Economy Needs’. The 2015 budget is one of the 10th Malaysia Plan (RMK). Our Prime Minister hoped that all people can prepare themselves to face of the economic changes throughout the year 2015. These changes aim to stabilize, improve and strengthen the economy. Therefore, we as the citizen should take positive thinking and help and support of the efforts that our Prime Minister to further develop our national economy in order to par with developed countries.

This time, Budget 2015 has more attention and focusing on in people’s economy based on the seven strategies provided, which are, strengthening economic growth, strengthen fiscal governance, human capital and entrepreneurship to empower, strengthen Bumiputera agenda, upholding the role of women, youth develop a national transformation program, lastly, welfare of the people.[1] As we can see clearly, this budget was showing a lot about economic interests of citizen’s needs. This is to reduce a little burden of the people about this economic issues. Thus, through the seven strategies provided, it would give a lot benefits to the people in addressing problems faced by the people today. The budget also aims to reduce the debt of the State and taking effective steps to control the national economy to run smoothly and effectively. In addition, the budget also seeks to balance the economy between two sectors, known as, economic capital and economic needs of the people. Now, we can see the government’s efforts to balance both sectors of the economy as these two very important economies to the countries.

RM273.9 billion has been allocated in Budget 2015, this shows an increasing of RM9.8 billion from the original allocation in 2014[2]. This is to fund all the expenditures of development throughout the year of 2015. There are many action taken to improve this economy to accomplish this seven strategies and to make our economy run more smoothly and effectively. However, there are many positive and negative feedback from the people and especially from the opposition about this Budget 2015. This is happened because some of the people might not satisfied with this implementation of Budget 2015. Therefore, we are strongly agree with the statements given that, Malaysia Budget 2015 is no longer realistic with some issues to support our agreement such as the distribution of BR1M scheme, global oil price slumps, government debt-to-GDP ratio, volatility of capital flows and ringgit and implementation of goods and services ( GST ) that affects economy.


The debt-to-GDP ratio is known as the ratio between the debt of a country’s government and its gross domestic product. A low debt-to-GDP ratio shows an economy which produces and sells goods and services able to pay back its debts without adding further debt. Therefore the lower the debt-to-GDP ratio, the better.

This concept will have to be considered since this ratio may rise or fall according to the deficiency of the national budget. Most of the taxes the government imposes such as income tax, are made to minimize the rate of borrowings (debts). If the country imposes unnecessary taxes, both the productivity rate of the country and the consumption of households goes down, thereby decreasing the value of GDP. If the GDP decreases rapidly, then the ratio will rise since the change in government’s debt and that of GDP is not equal.

The figure above shows the debt-to-GDP ratio for the past years whereby in 2014 the ratio was 54.8%. This year, the total amount of government debt added up to RM740.7 billion[3]. The total value for GDP refreshed on 9th may 2015 was U$312.44 billion which equals RM 1,124,784,000,000[4]. Therefore the calculation of debt-to-GDP ratio can be as follows:

According to the above statistics, we can see that the ratio is increasing from 54.8% to 65.9% and the increasing percentage is 11.1%. Therefore the 2015-2016 national budget is unrealistic since the excessive increase in this debt-to-GDP ratio which will result in having more and more unpaid debts. In so doing, the civilians will have to suffer the consequences like, higher taxes etc.


Plunging of global crude oil over the past few months has cause a stir to the global economy development. The performance of Ringgit has too decreases since then giving a severe impact to the country’s revenue. The Ringgit has drop 13.5% since August 2014 to 3.5715 against USD, and is the worst-hit currency in Asia due to sharp fall of crude oil prices[5]. Not just the fluctuation of Ringgit, other currency too, soften against USD since September 2014[6].

It is therefore the Budget 2015 be revise again wisely because it is planned using previous financial assumptions during 2014 when Ringgit is still at a stable exchange rate of RM3.20 against USD, crude oil selling at USD100/barrel, and GDP of Malaysia estimated between 5% and 6%.


For a country that imports crude oil, a lower crude oil price may be seen as a good news, but for crude oil exporters like Malaysia, this will bring a lot of negative impacts especially on the Malaysia Budget 2015 that just announced last year. In the Malaysia Budget 2015, the government expected that the average crude oil price will be in the range of US$ 100 – US$ 110 per barrel, but the crude oil price has fallen until around US$ 50 per barrel since Jun 2014. According to our Prime Minister, Datuk Seri Najib Razak in 20 January 2015, said that in the last six month (June 2014 to December 2014), the price of the crude oil has fallen by more than half from the original forecast that oil price will be sustained at US$100 (RM 357) a barrel.[7]Malaysia is a crude oil exporter which highly dependent on the crude oil income. Now, as the price of the crude oil slump, the government is forced to revised the Budget again and set again the price of crude oil to expected US$ 55 per barrel. This causes the Malaysia Budget 2015 is no longer realistic. Below is a statistics that shows the crude oil price has fallen substantial since June 2014 until January 2015.

As we can see from the statistics above, the Brent crude oil at June 2014 is around US$ 107 per barrel and the crude oil price is fallen continuous and substantial until US$ 105 per barrel (August), US$ 101 per barrel (September), US$ 95 per barrel (October), US$ 90 per barrel (November), US$ 60 per barrel (December). There is only July have risen until US$ 115 per barrel and other months is fallen.


In the Malaysia Budget 2015 speech, Malaysia Prime Minister Datuk Seri Najib Abdul Razak introduced a new tax instrument that is Goods and Services Tax (GST) will be executed effectively start from 1st April 2015. The purpose of introduction of GST is to decrease the debt level in the country besides increase the efficiency of tax system in Malaysia. The rate of GST in Malaysia is fixed at 6%. The Sales and Services Tax (SST) which current rates are 6% and 10% respectively will be abolished with the implementation of GST.[8] SST will be replaced by GST. GST is a consumption tax added on the price of goods and services. The introduction of GST in Malaysia caused many argument from various parties on how GST affect goods price to increase or decrease. Thus, Malaysia Budget is no longer realistic because the GST will affects economy.

Introduction of GST can cause inflation to occur in Malaysia. Government guided that 38% or 354 items out of 944 goods and services items in the Consumer Price Index (CPI) basket may experience some price increase of about 5.8% as GST is a broader based consumption tax in the 2015 budget speech.[9] Malaysia Government expects the inflation rate to increase to around 4% to 5% in 2015 which is higher compared to the previous year. The implementation of GST cause store staffs do not know on which items to add GST and which were exempt. For example, newspapers and fresh food are subject to GST. However, newspaper that costs RM1.20 was charged RM1.26. In case of the fresh food, there are some restaurants that lump all the processed food with fresh food as one and charge the 6%. This results to the overcharged and also charged the customers for the wrong items.[10] Moreover, many people are unknowing which products will be not subject to GST or zero-rated as the existing list kept adjusted. Thus, GST can cause inflation on economy in Malaysia and also can cause the store staffs to overcharged customers for the wrong items.

Besides that, the execution of GST cause the majority of Malaysians who are not eligible to be taxpayers force to be taxpayers now. This is because out of 30 million Malaysia’s population, only 1.7 million pay income tax. These 1.7 million is out of 12 million employed Malaysians. It means that only small population of the country is paying the income tax. This is going to kill the country over the long term because the price of oil and gas which help finance the country’s growth and development are now going down. So, more Malaysians need to pay tax so that not only small population of the country is paying tax for the benefit of the others.[11] Although the government mentioned that the income tax rate will not be increase but the introduction of GST definitely burden the people, in actually fact the GST burden the Malaysians who are not the taxpayers now because some people are not eligible where their income is under certain amounts. Therefore, GST will influence on those low income workers which are not yet be taxpayers now as they will need to pay for GST when they spend on general products and services.

Furthermore, GST may lead to high unemployment rate to occur in Malaysia. The implementation of GST cause the price of general products to increase and GST limit the purchasing power of households result in the demand of the market in goods and services to be decrease. People are not willing to spend so much as the price of products increased and the cost of living is getting higher which cannot be met by their current income needs, GST will definitely burden the low income working group. This will substantially affect the market demand. The low demand of market due to the higher cost of products pass to the end of consumers. The current condition of lower demand make the businesses take an alternative to decrease the supply of goods and services to meet the current condition. Therefore, the supplier of the businesses will cut down the expenses by decreasing the cost of labour due to the lower output is required and eventually lead to the high rate of unemployment to occur.

In conclusion, Malaysia Budget 2015 is no longer realistic due to the execution of GST. Malaysia government may think that the implementation of GST may decrease the debt level of the country, but GST do not help in the development of the country and it also do not help in reducing the debt level of the country. People will worry that the redistribution of GST or increased tax revenue may not be achieved or unfairly. Therefore, the execution of GST will impact the growth of economy of the country.


1Malaysia People’s Aid otherwise known as BR1M, is a government scheme which was introduced at the presentation of the 2012 budget which is still continued. The objective of this BR1M was introduced to help reduce the cost of living for low-income earners may indirectly reduce poverty especially in rural populations. BR1M also extended to unmarried individuals earning less than a set amount each month.BR1M are as follows:

Total revenue


Earning RM3000 and below


Earning RM3000-RM4000


Earning under RM2000 ( single, aged 21 and above )


Source :[12]

No doubt that the granting of this BR1M brings benefits to the people of Malaysia, especially to those who are less fortunate. However, the economic downturn experienced by Malaysia has made this BR1M be no longer realistic. This can be evidenced by a number of reasons:

  1. As notified, BR1M channeled through bank accounts. For those who have a bank account it was not a problem. However, for recipients who do not have bank accounts, they had to borrow or issue its own money to open an account. This in turn will charge again to open a bank account because it requires only a minimum of RM100 as deposit. Not only that, but the deposit money had to be cut to make the cards atm according to sometimes set by each bank.
  1. For people who are bankrupt or bankrupts, they are not allowed to open an account in the bank. The question is how BR1M money is spent on them? In this case, there are no clear explanations and real to answer that question.
  1. BR1M is not enough to cover the impact of GST. While BR1M has been increased, but the treasury has estimated that households earning less than RM4000 a month will see the increase in spending between RM140-RM700 per year due to GST. It can be concluded that, BR1M not bring any changes because most of BR1M had to be used to cover the GST tax burden.
  1. BR1M are given to people for better used to help resolve the economic crisis that hit the country now. Next, this BR1M issue can also be associated with the GST (government service tax).


“The essence of Budget 2015 at 10th October 2014”. Taken from: (

“Summary of contents Budget 2015 Budget Highlights”. Taken from: (

Rahimy Rahim. March 2015. “Najib: Malaysia’s external debt tripled to RM740 billion due to ‘new loan definitions’ ”. Taken from : (

Trading Economics .(May 2015). “Malaysia GDP”. Taken from : (

“Ringgit Falls to Five-Year Low as Oil Slump Cuts Revenue Outlook”. Taken from : (

The Star. 2015. “Budget Revision: Full text of Prime Minister’s speech”. Taken from : (

Nurul Huda Jamaluddin. 2015. “Budget 2015 No Longer Realistic, New Measures Needed”. Taken from : (

The Star Online. 10 May 2015. “GST: Some items to be cheaper”. Taken from : (

“Malaysia Goods and Service Tax”. 10 May 2015. Taken from : (

“Malaysia GST Teething Problems on the First Day”. 9 May 2015 . Taken from : (

“BR1M 2015 Naik Kepada RM950 Bantuan Rakyat 1Malaysia”. Taken from : (

“The GST Issue”. 9 May 2015. Taken from : (


[1] “The essence of Budget 2015 at 10th October 2014”. Taken from: (

[2] “Summary of contents Budget 2015 Budget Highlights”. Taken from: (

[3] Rahimy Rahim. March 2015. “Najib: Malaysia’s external debt tripled to RM740bil due to ‘new loan definitions”. Taken from : (

[4]Trading Economics .(May 2015). “Malaysia GDP”. Taken from : (

[5]“Ringgit Falls to Five-Year Low as Oil Slump Cuts Revenue Outlook”. Taken from : (

[6]The Star. 2015. “Budget Revision: Full text of Prime Minister’s speech”. Taken from : (

[7]Nurul Huda Jamaluddin. 2015. “Budget 2015 No Longer Realistic, New Measures Needed”. Taken from : (

[8]The Star Online. 10 May 2015. “GST: Some items to be cheaper”. Taken from : (

[9]“Malaysia Goods and Service Tax”. 10 May 2015. Taken from : (

[10]“Malaysia GST Teething Problems on the First Day”. 9 May 2015 . Taken from : (

[11]“The GST Issue”. 9 May 2015. Taken from : (

[12]“BR1M 2015 Naik Kepada RM950 Bantuan Rakyat 1Malaysia”. Taken from : (

Cite This Work

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Content

Featured review logo

“Thank you UK Essays for your timely assistance. It has helped me to push forward with my thesis.”

Tajeram M

Related Services

View all

DMCA / Removal Request

If you are the original writer of this essay and no longer wish to have the essay published on the UK Essays website then please.

McAfee SECURE sites help keep you safe from identity theft, credit card fraud, spyware, spam, viruses and online scams Prices from

Undergraduate 2:2 • 1,000 words • 7 day delivery

Learn More Order now

Delivered on-time or your money back

Each order includes
  • A fully qualified writer in your subject
  • 100% confidentiality, the work is never re-sold or published
  • Standard 7-day amendment period
  • A paper written to the standard ordered
  • A detailed plagiarism report
  • A comprehensive quality report
Rated 4.5 out of 5 by Logo (62 Reviews)

Our Services

We have a range of academic services including essay writing, full and part dissertation writing, and our ever popular marking and proofreading service.

You can view our full service portfolio here

UK Essays can show you how to write great academic work with our 4.5 star rated services Logo
Place an order or Learn about our services