KUALA LUMPUR (Reuters) - Malaysia’s new government on Wednesday said it would reduce a goods and services tax to zero from June 1, effectively abolishing it, a move that is likely to spur spending in the Southeast Asian nation but put pressure on its fiscal position.
Prime Minister Mahathir Mohamad, who won last week’s general election, had vowed during the campaign to get rid of the 6 percent GST to address the rising cost of living. Ousted leader Najib Razak had introduced the tax in 2015 amid lower oil prices.
GST would be zero-rated from June 1, the Ministry of Finance said in a statement on Wednesday.
Mahathir had also promised to reintroduce fuel subsidies, which along with the GST removal, could widen Malaysia’s fiscal deficit.
Ratings agency Moody’s said this week that the removal of GST would be credit negative for Malaysia as it would cut off a significant revenue source for the government.
Najib’s government had planned to collect 43.8 billion ringgit ($11.05 billion) in 2018 in GST, about 18 percent of total revenue.
Zeti Akhthar Aziz, a senior adviser to the Malaysian government, said on Tuesday Malaysia would be able to reduce the fiscal deficit by controlling expenditure in the absence of GST.
Zeti, a former long-serving central bank governor, said the government will re-prioritise projects, increase efficiency and reduce wastage in the public sector.
($1 = 3.9650 ringgit)
Reporting by Praveen Menon and A. Ananthalakshmi; Editing by Raju Gopalakrishnan