Malaysia repeals consumption tax, reinstates old tax regime

Malaysia repealed a much-maligned consumption tax on Wednesday, as Southeast Asia’s third-largest economy struggles with a burgeoning debt that its new government has blamed on the previous administration.

Prime Minister Mahathir Mohamad’s coalition campaigned for the removal of the goods and services tax (GST) ahead of a May general election, when voters angered by rising living costs and rampant corruption booted out former premier Najib Razak and his long-ruling coalition.

Finance Minister Lim Guan Eng said the previous government had misused the funds raised through GST, which came into effect in April 2015, to finance crony projects and cover up the multi-billion dollar scandal at state fund 1Malaysia Development Berhad (1MDB).

“GST money was used to cover the hole in 1MDB’s chest. GST was borne of 1MDB. Without 1MDB, there would be no GST,” Lim said when tabling the bill to repeal the tax in parliament.

“The people know that GST was introduced not to protect the interests of the people but that of Barisan Nasional cronies,” Lim said, referring to the previous ruling coalition.

Najib’s administration set GST at 6 percent, which was lower than the 16 percent rate under the previous sales and services tax (SST) regime but covered a much broader range of items and services.

The repeal of the consumption tax follows parliament’s move to reinstate the SST, which the government plans to bring in on Sept. 1. However, the government has yet to announce the rate for the revived SST.

In his first week in charge, Prime Minister Mahathir reopened domestic investigations into 1MDB, from which, according to civil filings by the U.S. Department of Justice, $4.5 billion (3.5 billion pounds) had been siphoned by top fund officials and their associates.

Mahathir had blamed Najib, his former protege, for mismanaging the economy and saddling the country with up to 1 trillion ringgit (190.6 billion pounds) in debt.
Najib, who was formerly Mahathir’s protege, and his wife Rosmah Mansor have since been barred from leaving the country.

On Wednesday, Najib was charged on three counts of money laundering in connection with alleged misappropriation of funds at a former unit of 1MDB. The charges add to four earlier charges of criminal breach of trust and abuse of power.