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SHAH ALAM – Malaysia should stop treating the Goods and Services Tax (GST) and Sales and Service Tax (SST) as an either-or choice and instead focus on building a tax system that can raise sustainable revenue without placing excessive pressure on households.
Economist Professor Emeritus Dr Barjoyai Bardai said the government’s proposed study on incorporating selected GST elements into SST should not result in two overlapping consumption taxes, but in a single system that combines the strengths of both approaches.
“The government should not make the choice simply between GST and SST. It should ask: how do we obtain the efficiency and revenue advantages of GST without imposing a disproportionate burden on households?” he told Sinar Daily.
He said a literal combination of GST and SST could instead create additional complications for businesses, particularly small and medium enterprises (SMEs), through separate registration requirements, invoicing rules and compliance obligations.
“Malaysia should not create a complicated two-tax system. It should create one coherent consumption-tax architecture that selectively adopts the strengths of GST while retaining targeted SST treatment where there is a clear policy justification,” he added.
One of the key areas Barjoyai said Malaysia could learn from GST was its ability to reduce the cascading effect, where tax imposed at an earlier stage of the supply chain becomes embedded in the price of goods at later stages.
He highlighted that the incorporating GST-style input tax mechanisms into SST could make taxation more efficient by ensuring tax was imposed more closely on value added rather than repeatedly through the supply chain.
Barjoyai said such an approach could bring three main benefits, greater efficiency, stronger compliance and a broader and potentially more stable revenue base.
He stressed that the documentation required for businesses to claim input tax credits could also create a stronger audit trail, encouraging businesses across the supply chain to maintain proper records and comply with tax requirements.
However, he pointed out that any reform should take into account the financial position of Malaysian households before the government considers increasing the overall tax burden.
The latest Department of Statistics Malaysia data showed that the median monthly wage of formal-sector employees stood at RM3,027 in March 2026, meaning half of formal-sector employees earned below that amount.
“That is not a very large income buffer when households are facing expenditure on housing, food, transportation, education, healthcare and other necessities,” he added.
Barjoyai therefore said Malaysia should improve the administration and efficiency of its existing tax system before considering a broader tax base or higher rates.
“First improve the efficiency and administration of the system. Then broaden the tax base. Only after that should the government consider increasing the overall tax burden,” he said.
He proposed several safeguards if GST-type features were eventually introduced, including keeping the initial rate low, directly protecting lower-income households through targeted assistance and strengthening the progressive elements of the wider tax system.
He also called for greater transparency over how additional tax revenue would be used, suggesting that increased collections could be channelled towards healthcare, education, public transport, childcare, housing assistance and social protection.
At the same time, he said stronger anti-profiteering and competition measures would be needed to prevent businesses from using a new consumption tax as a reason to raise prices beyond the actual tax increase.
For businesses, particularly SMEs, he said any transition should prioritise simple registration, digital invoicing, faster refunds, sensible registration thresholds, automated compliance and stronger support.
Meanwhile, economist and policy specialist Dr Geoffrey Williams said Malaysia should also look beyond both GST and SST as it considers ways to strengthen government revenue.
Williams said Prime Minister Datuk Seri Anwar Ibrahim was right to be cautious about bringing back GST, arguing that the tax was regressive because its wider coverage meant more consumers, including lower-income households, would ultimately pay.
“GST is not a magic formula that raises tax revenue from nowhere. The higher revenue comes from ordinary people paying more tax on more items,” he said when contacted.
He said businesses tended to favour GST because the ultimate burden fell largely on consumers.
“Businesses like GST because they do not pay it. The cost falls almost completely on consumers.
“This is why it is regressive. It will cause higher prices across more goods and services and more people will be worse off as a result,” he said.
Williams also questioned whether reintroducing GST at six per cent would be sufficient to address Malaysia’s longer-term revenue needs, noting that GST and value-added tax rates in many countries were already in double digits.
Instead, he proposed an electronic payments tax (EPT) as a potential alternative, saying the small levy could tap into Malaysia’s growing volume of cashless transactions.
He estimated that a one per cent EPT could raise RM28.8 billion, while a two per cent rate could generate almost RM60 billion.
“It is a very low tax but raises a lot of revenue because of the high number of electronic payments. Because it is so low, most people will not notice the impact,” he said.
Williams said the increasing use of cards, QR payments and e-wallets meant Malaysia should consider taxation models that reflected the changing nature of the economy.
“We need new taxes, not SST or GST, which are old-style taxes not fit for purpose in the current business environment,” he said.
While the two economists differed on the preferred direction, both placed household affordability and the efficiency of the tax system at the centre of the debate.
Barjoyai said the government's proposed study could therefore provide an opportunity to move away from the familiar GST-versus-SST argument and instead examine what a more effective, transparent and sustainable Malaysian tax system should look like.
The proposed study follows Anwar’s statement that SST would remain the basis of Malaysia’s tax system, although selected GST features could be considered if they helped improve it.
Malaysia introduced GST at six per cent on April 1, 2015, before the rate was reduced to zero per cent from June 1, 2018. SST was subsequently reintroduced on Sept 1, 2018.
Anwar has maintained that any move towards a broad-based consumption tax must take into account the cost-of-living pressures faced by Malaysians.
