Global Tax 50 2014: Najib Razak

Najib Razak is a new entry this year

Following a succession of many leaders whose popularity dropped after increasing taxes, last year Malaysia's Prime Minister Najib Razak announced that from April 2015, a 6% goods and services tax (GST) would replace the outdated sales and service taxes. Despite criticism, Razak has adamantly maintained that broadening the tax base is an important step in Malaysia's transition from a developing to developed country.

"We are one of the very, very few countries in the world which does not have a GST. But there are challenges. Anything to do with any new form of tax, like consumption tax in Japan, carbon tax in Australia, these are big issues that cannot be easily decided," said Razak.

The 6% GST is meant to raise a total of 23.2 billion ringgit ($6.78 billion) in its first year. The amount will eclipse the funds raised from the previous sales and services taxes, with much of the excess being used for assistance programmes. The government has been working hard to prepare itself and taxpayers, seconding professionals out to firms and bringing professionals in from abroad to train staff domestically. Razak also pledged RM 4.9 billion ringgit ($1.4 billion) to help low income households during the transition.

In his 2015 Budget, Razak expanded on the exemptions in his 2014 Budget. Some basic food items such as bread and coffee, more than 2900 medicines, health and education services, will be exempt.

Though the unpopular GST has knocked Razak's domestic approval ratings, tax professionals can thank him for the increasing demand in their services. In addition to government preparation, an inflow of professionals have been brought in to train private lawyers and accountants to handle GST related issues.

Razak's influence does not stop at Malaysia's borders, either. Fellow ASEAN members Vietnam and the Philippines may follow suit by introducing GST and will be watching Malaysia as it implements the new tax. The government has announced a one year grace period before corporations will be punished for not being compliant or having incorrect paperwork.

Though it has been his most ambitious tax policy, GST is far from Razak's only major fiscal reform. The corporate tax rate will be reduced by one percentage point in 2016 to 24%. Razak is reducing individual income tax in 2015 by between one and three percentage points, depending on income brackets. In 2014, he also increased real property gains tax and minimum property purchase price for foreign residence owners to help cool the housing market.

2015 will be a crucial year for the Razak regime as tensions, criticism, and spending rise in the lead up to the April 1 GST implementation date.