Malaysia wants to fight inflation with GST. Will it cost Ismail Sabri at the polls?

Critics say bringing back the GST will hurt low-income groups who have already borne the brunt of Covid lockdowns and job losses over the last two years

But with more people needing handouts to get back on their feet, analysts say the government needs to widen its revenue sources so it can boost social welfare

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Malaysians have been feeling the pinch of rising costs of living. Photo: AFP

Published: 11:00am, 19 Jun 2022

Prime Minister Ismail Sabri Yaakob caused a stir last month when he said the government was studying whether to bring back the unpopular Goods and Services Tax (GST) to help prop up Malaysia’s finances amid soaring inflation.

The news almost immediately triggered a backlash, especially from the opposition Pakatan Harapan coalition, which argued that the broad-based consumption tax would further burden a public that was already struggling with stagnant wages and surging prices caused by supply chain disruptions.

Rising living costs – which the opposition had blamed on GST – was a major factor that helped Pakatan Harapan defeat Ismail Sabri’s Barisan Nasional coalition in the 2018 general election. Its campaign fed into popular anger over the alleged excesses and corruption of the ruling class under then-premier Najib Razak, particularly his involvement in the multibillion-dollar 1Malaysia Development Berhad (1MDB) financial scandal.

Led by Mahathir Mohamad, the Pakatan Harapan administration made good on its pledge to cancel the tax regime and replace it with the previous Sales and Services Tax (SST), in one of its first major policy moves.

“There is no point in collecting more tax if, in the end, the people’s money will be wasted due to corruption, wastages and cronyism,” Pakatan Harapan’s presidential council said in a statement earlier this month.

Malaysia’s headline inflation went up 2.3 per cent year-on-year in April, according to government data, slightly below the average rate of 2.5 per cent registered in 2021, and well within the government’s forecast range of 2.3 to 3.3 per cent for this year.

But ongoing global food supply disruptions caused primarily by Russia’s invasion of Ukraine, paired with the spike in global crude oil prices, present a difficult situation for governments around the world, including Malaysia, as they face the prospect of prolonged inflationary pressures that could bleed out treasuries already depleted by the Covid-19 pandemic.