KUALA LUMPUR, Oct. 25 (Xinhua) -- The Malaysian government on Friday announced a series of measures including the introduction of a controversial consumption tax in a bid to tackle the mounting debt level and boost the resilience of the country's economy.
Prime Minister Najib Razak, when tabling the 2014 budget in parliament, announced that a 6-percent Goods and Services Tax (GST) will be implemented from April 1, 2015, replacing the sales tax and service tax.
"Currently, the inflation rate is low at 2 percent. The government believes that this is the best time to implement GST as the inflation rate is low and contained," he said. The government said the GST will broaden the tax base, enhance compliance and increase revenue collection of the government while streamline the present tax structure, making it more efficient, effective, transparent and business friendly.
Najib, who also holds the Finance Minister portfolio, stressed that the 6-percent tax rate is the lowest among the 10-nation Association of Southeast Asian Nations (ASEAN).
The essential goods including staple food, transportation and some government services would be exempted from the GST, while the government will provide additional tax incentives to individuals and companies.
The GST is widely expected as Malaysia is facing one of the highest debt-to-GDP ratios in the region. In its annual economic report, the government expected the total federal government debt would increase to 54.8 percent of GDP by the end of 2013 from 53.3 percent of last year, just under the 55-percent debt ceiling.
Abdul Farid Alias, president and chief executive of Maybank, Malaysia's biggest lender, said in a statement that the decision in introduce GST "will put to rest the speculations and uncertainties over the matter so that consumers and businesses can prepare for it."
Meanwhile, the opposition remains critical to the GST. Its leader Anwar Ibrahim said the new consumption tax will widen the divide between the rich and the poor. In its own version of the budget, the opposition argued that it was not the right time to implement GST despite the merits, as the low and middle income groups will shoulder heavier burden compared to the rich.
The victory of Najib's ruling coalition in the general election in May has boosted the market confidence in the country, but the concerns over soaring debt level remain. The international rating agency Fitch slashed Malaysia's economic outlook to negative in July, warning against the country's rising debt and the lack of budgetary reform.
The government has since cut the fuel subsidy in September by incresing the fuel price in a move toward subsidy rationalization.
Najib said the 2014 budget is formulated to ensure that the country's economy continues to expand at a strong pace, and to reduce the fiscal deficit, with the overall objective of prospering the nation and promoting the well-being of the people.
Malaysia is running a budget deficit of 4 percent this year, down from 4.5 percent in 2012. The 2014 budget set a 3.5 percent deficit for 2014 and the government is eyeing achieving a balanced budget by 2020.
Malaysia's economy expanded by 4.2 percent in the first half of 2013, supported by strong domestic demand but cushioned the weaker external sector. The government said the economy is expected to grow at a firmer pace to achieve 4.5 percent to 5 percent for the year 2013 thanks to improved economic prospects in major economies such as the United States, Europe and China.
"In 2014, in tandem with an improved global economic outlook, the domestic economy is projected to grow at a stronger pace of 5 percent to 5.5 percent," Najib said.
Malaysia's total trade increased 2.2 percent to 888.3 billion ringgit (282.2 billion U.S. dollars) during the first eight months of 2013, with imports expanding at a faster rate while exports declined moderately.
In line with weaker external demand and lower commodity prices, gross exports declined 0.8 percent to 461.4 billion ringgit (146.6 billion U.S. dollars) during the first eight months of 2013.