 "Mustapa Mohamed, Malaysia")
Malaysia recently marked two years of introduction of the goods and services tax (GST), the latest country to do so in 2015. The country’s Minister of International Trade & Industry, MUSTAPA MOHAMED in an interaction with Subhayan Chakraborty and Sudipto Dey, shares the lessons from Malaysia’s GST experience, along with its role in the current round of Regional Comprehensive Economic Partnership (RCEP) negotiations. Edited excerpts:
India is in the process of introducing the GST. Are there any lessons from the Malaysian experience that India could use?
First, it is the engagement with the public. Second, GST became unpopular with the public, as some section of business took advantage of the tax to raise prices. So, we had to bring in anti-profiteering measures. The public wanted the government to come down hard on those who took advantage of the system. (With the GST) there is risk of inflation but that is just one-off.
How much time did the Malaysian industry get to be ready for the new tax?
In our case, the GST was conceived years ago. So, the industry had sufficient time to adjust – at least 18 months (from the time the rates were announced).
We may have lost some political capital since the time the GST was introduced but our Prime Minister was courageous. We could have been populist — not taken this route, but we did the right thing for the long term.
Have the government revenues gone up sizeably because of the GST?
Yes, they have. Earlier many — such as those in the informal/black economy — were not paying taxes. The GST has taught entrepreneurs to be disciplined and maintain proper accounts. Still, some people blame everything on the GST. We have had the GST for two years and it is still not over yet.
Without the GST, we would have been in serious trouble. (Globally) the price of oil and gas has come down. Our revenue from oil has come down drastically. Our Prime Minister is on record to say that the GST has saved us from a very challenging fiscal situation. But people don’t like it. Awareness and education of the public (on the GST) is tough but crucial.
The Malaysian PM has lent a big push to the current round of RCEP negotiations. How feasible is the target of finishing negotiations by this year-end or early next year?
Firstly, all of us are committed, not just Malaysia or the Association of Southeast Asian Nations (Asean). More than 16 countries have kept talking. It’s a very important agreement, now that protectionist noises are coming from many directions in the world.
Secondly, we have met several times — 17 times over the past many years with ministers having met three to four times. When the two PMs met, they also discussed it.
Thirdly, we know this is going to be the biggest trade deal in the absence of the Trans-Pacific Partnership.
RCEP is very inclusive — it includes China and India. Of course, we have to narrow the gaps. We have our own position, while Asean and India have theirs.
The next ministerial meet is in late May. Between now and then, we have to see what can be done. We all have ambitions. We’ll try hard, but it can’t be a perfect agreement and we’ll have to accept that. We have this small window but with commitments from all major countries, it’s tough, but doable.
On that note, how comfortable is Malaysia with India’s demand to make services trade a part of the final agreement?
There have been some proposals on services. India, we know, has a strong position in services and it has also made some concessions on goods in this regard. It’s difficult among Asean countries, as there’s a big divide on services. Perhaps there can be a middle path. Malaysia has been chairing the discussions on services and therefore, we understand the issues quite well. There have been proposals on the table as well as compromises. So far, those compromises do not seem to be working. So, we have to revisit those. We know India is very aggressive on it. We also know some RCEP countries are accommodating.
What is the kind of tariff liberalisation for goods that can finally be achieved?
There have been a lot of conversations on that and it is going to be as liberal as possible. We are almost there on goods, but it’s not final. It’s safe to say that on goods, there has been more progress than on services.
Is Malaysia looking to diversify its export basket to India beyond palm oil and crude? Indian palm oil producers have complained of Malaysian producers dumping cheap oil in the Indian market.
It is private sector driven but we are keen on doing that. It depends on what you want and what you produce. It’s a question of demand and supply. Palm oil is an important component of our trade with India, apart from electrical items and refined petroleum products. These make up almost 60 per cent of our trade.
