31 May 2018Posted By: Mudit Handa

What does 6% GST Rollback in Malaysia from June 1 mean for India?

It is beyond any doubt that the Goods and Services Tax is one of the most momentous reforms in India’s economy since its independence. The groundbreaking indirect tax reform has indeed transformed the lives of millions of traders, merchants and budding entrepreneurs by the abolition of superfluous tax liabilities and simplification of the taxation mechanism. Perhaps, this is the reason behind the continuous expansion of the new GST registration process in India, with over 1 crore Indian businesses already undergone the online GST registration process.


However, the saga of this path-breaking tax administration reform has not been that perky in all the economies of the world, just as recently the finance ministry of Malaysia on May 16, 2018, had announced that the Goods and Services Tax (GST)  @6% will be scrapped with effect from June 1, 2018.

The decision has come in the wake of the resolution by the newly elected Prime Minister of Malaysia Tun Dr Mahathir Mohamad to discontinue the GST regime in the country. According to the finance ministry of Malaysia, the GST rate will formally be put to 0%, and this will be finally implemented nationwide with effect from  June 1.  


Given below are important postulates from the most recent and perhaps the first case in the world related to GST revocation:


#1. How GST regime became ineffective in Malaysia?

Since the time GST regime was implemented in Malaysia in April 2015, the general public began encountering the following challenges-

  • The concept of input tax credit for settlement of the final tax liability of a business entity was very new and perplexing for the taxpayers who had gone through GST registration procedure.
  • As GST was imposed on many essential goods of mass consumption, it was alleged that the GST was responsible for inflation.
  • The nation was hit by constant fall in oil prices in Q2 of FY 2015, due to GST implementation. Being a net energy exporter, Malaysia was also gaining from rising global oil prices. The scrapping of GST will certainly help to offset a plummet of GST revenue. 
  • Devaluation of Malaysian ringgit was another reason behind such decision.

GST has turned out to be severely expensive for the previous government. It is assumed that Malaysian government is to attract RM 1 Trillion (US $ 0.25 Tn) Debt by 2021.

The erstwhile PM Najib Razak had thus announced the rollback of GST.  


Though the GST regime in Malaysia is highly simplified, with single GST rate of 6%, there have been many confusions in this system due to the factors explained above. Thus, the matter is of much significance to India as our own GST mechanism, including GST return filing procedure is under the process of simplification.


#3. How is India’s GST different from that of Malaysia?

The striking difference between 2 systems is that Malaysia had followed a single GST rate of 6% on all goods & services, whereas India’s GST has separate slab rates of 5% (for essential goods), 12%, 18% and 28% (for luxury items).


#4. What is India’s track record under GST?

Till now, the matter of gigantic GST collections since the beginning of GST regime, amounting to ₹7.14 lakh crore is popular far and wide. Additionally, India’s GST is much more effective despite being intricate as essential goods are either exempted or taxed at the lowest slab of 5%. Perhaps, the personalisation of the tax-pattern is the reason why the number of GST registration has been increasing steadily.

#5. What implications does the case of Malaysia have on India’s indirect tax?

On careful analysis of both the systems, the tax experts have asserted that India’s GST is really effective and is under constant advancement. Besides, Compliance rate has improved to 70%.

Strengthening of the IT network, a new GST return filing system and prompt processing of tax refunds will further boost the reforms under GST.


In case you require any other guidance concerning GST registration in India, feel free to contact us at 8881-069-069.


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