Malaysia scraps GST
Malaysia scraped the GST(Goods and Services Tax) on Wednesday, 17th of May. This was after 3 years of rolling it out. It was the last country prior to India to have introduced the GST and this may come as an alarm to policymakers in India. Also, it would lead India to pace with caution over coming few years. Currently, India is in the phase of stabilizing new indirect tax system that was introduced last year in July.
GST, from 1st July 2017, was introduced in India to replace a bundle of indirect taxes – both Centre and states – across India. It created an uninterrupted chain of seamless input tax credit that checked the cascading of taxes. But this implementation was a way more complex than anticipated for the industry. As it is with five different rate slabs and a complicated return filing system through an unstable GST Network, the information technology backbone.
Although the impact isn’t direct, experts recommend government to study the experience of Malaysia closely. Government should learn from it and take required prevention to come up with more reforms of expanding GST in India in a phased manner.
“Events unfolding in Malaysia are unprecedented and quite interesting. Rolling back the GST system, which is only three years old there, would be challenging for India as well as businesses. It might be worthwhile for the Government of India to closely study the Malaysian experience and take necessary precautions over the next few years,” said Pratik Jain, partner, PwC India. Moreover, he also stated,”The Indian GST is now stabilizing, tax base is expanding, inflation is largely under control, and there has hardly been any resistance from businesses”.
Malaysia’s announcement is followed by the electoral promise of Prime Minister Mahathir Bin Mohamad which lead him win the elections last week. The tax rate would be zero starting from June 1.
Since, India had studied the Malaysian model prior the implementation of GST and adopted the clause of anti-profiteering to assure the GST benefits are carried on to the end-user by the industry.
“Malaysia had an absurd situation of a single GST rate of 6 per cent for all goods and services. That is not sustainable. A cycle and a BMW cannot be taxed at the same rate. That is why for India the different rates will work,” said Sumit Dutt Mazumder, former chairman of the Central Board of Excise and Customs. He then added that India has not borrowed anything from Malaysia, but the anti-profiteering clause.
It suggests that India may not end up with the same fate as Malaysia.
“While there may be some problems, the GST has brought in tremendous improvement in terms of the ease of doing business. The different rules, laws, and rates in the different states caused difficulties for businesses. Although for the service sector things have become somewhat complex, it has coped well,” said Bipin Sapra, partner, EY.
Reference: Business Standard
- Posted on May 17, 2018
- By Leena Bhagchandani
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