Malaysiakini Letter

With oil prices going up, shouldn’t GST be going down?

Ooi Heng, KPRU  |  Published:  |  Modified:

LETTER | Caretaker deputy prime minister Ahmad Zahid Hamidi said that the government guarantees that they will not raise GST after the 14th general election.

After all, based on the rising crude oil price from US$52 to US$70 per barrel, the federal government expects the oil revenue to be increased.

Since both oil revenue and GST are sources of national revenue, and the government has stressed the roles of GST in filling up the national revenue whenever the world oil price drops, therefore the tax rate should be reduced with the increase in oil revenue.

According to the Finance Ministry’s Economic Report, based on the average crude oil price of US$52 per barrel, the petroleum income tax collection in 2018 is expected to be increased by 4.6 percent to RM11.4 billion.

In 2017, based on the average crude oil price of US$50 per barrel, the petroleum income tax collection increased by 29.9 percent to RM10.9 billion from RM8.4 billion in 2016.

When the average crude oil price in 2014 was around US$100 per barrel, the petroleum income tax collection was RM27 billion.

Based on this, if the crude oil price has been raised to US$70 per barrel, the petroleum income tax collection should increase to about RM5 billion.

In addition to that, Petronas has promised the federal government that the dividend payout in 2018 will be increased from RM16 billion to RM19 billion, which is an increment of RM3 billion. Therefore, the total oil revenue of the federal government will be increased by around RM8 billion.

According to the Customs Department, the GST collection last year was RM44.29 billion. Based on the six percent tax rate, every reduction of GST rate by one percentage point would mean a decrease in revenue of RM7.3 billion.

If the oil revenue is being increased by RM8 billion, it would be close to the tax collection of GST at a rate of one percent. Thus, as the oil revenue contributes more, will the BN government reduce the GST by one percent?

The BN government had told us that the national tax collection was insufficient due to the decline in oil revenue, therefore GST was necessary as a replacement in order to increase the national revenue.

Conversely, the BN government had not told us that when the oil revenue increases, the GST rate may be reduced.

Therefore, due to the increase in crude oil price, the federal government obtained extra income due to the increase in oil revenue, and in our opinion, the rate of the GST, which is contributing to the national revenue at the same time, should not be unchanged, but be reduced, in order to lessen the people’s burden.

OOI HENG is executive director of the think-tank Political Studies for Change (KPRU).

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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