GST introduction
Malaysia's Goods and Services Tax took effect on 1 April 2015, ran for just over three years, and was removed by the government elected in May 2018.
What happened
GST was announced by Najib Razak in the 2014 Budget speech on 25 October 2013 and came into force on 1 April 2015 at 6%, replacing the sales tax and service tax that were abolished the same day. The enabling law, the Goods and Services Tax Act 2014 (Act 762), received royal assent on 9 June 2014.
Unlike the taxes it replaced, GST applied at multiple stages of supply, on domestic supplies and imports alike, with businesses above a RM500,000 turnover threshold required to register — registration opened on 1 October 2014, six months before the tax began. Some everyday items, including certain fresh foods, water and electricity, were zero-rated, and services such as education and health were exempt.
The case Najib made for it was that the two taxes being replaced had built-in flaws. He told the Dewan Rakyat that sales and service tax caused double taxation on consumers, gave no full relief on exports and created transfer pricing problems, that GST would mean paying tax once rather than twice, that it was "not a new tax", and that low inflation of about 2% made it the right moment. He announced it with 17 months' notice and with a transition package:
- a one-off RM300 payment to BR1M households
- individual income tax cuts of 1 to 3 percentage points said to take 300,000 people out of tax
- a corporate rate cut from 25% to 24%
- training grants and software assistance for businesses
He also said groups claiming that prices would rise and the poor would bear the burden were confusing the public.
The tax raised substantial revenue. On Ministry of Finance figures, collections were:
- 2015RM37.7 billion in the nine months
- 2016RM55.7 billion
- 2017RM60.5 billion
- 2018RM30.9 billion for January to May
That came to RM184.8 billion in all on the ministry's consumption-tax basis.
It also attracted sustained opposition. Anti-GST rallies were held in Kuala Lumpur on 1 May 2014 — with crowd estimates ranging from about 15,000 by police to about 50,000 by Malaysiakini — and again on 1 May 2015, the second followed by arrests including of S. Arutchelvan, Ambiga Sreenevasan and Anthony Loke.
Abolishing GST was the first of the ten promises Pakatan Harapan pledged to deliver within 100 days of taking office.
After the coalition won the election, the tax was repealed by Act 805:
- 9 May 2018The coalition won the election.
- 1 June 2018The rate was set to zero.
- 1 September 2018The sales and service taxes returned.
A separate controversy followed: Finance Minister Lim Guan Eng said RM19.4 billion in refunds was outstanding as of 31 May 2018 while the refunds fund held about RM150 million, and said the Public Accounts Committee and Attorney-General had found that routing collections to the Consolidated Revenue Account breached sections 54(2) and 54(5) of the Act. Section 54(5) on its face allowed the Minister to authorise exactly that transfer, and the reasoning behind the reported finding is not in the public sources. The characterisation was itself disputed in public commentary at the time.
How much GST contributed to the change of government is a question on which named analysts disagree:
- Suresh Narayanan and Abdul Rais Abdul Latiff
- describe grievance over the tax hardening into a tax revolt before the election
- Bridget Welsh
- links poor implementation and inflation to eroded Barisan Nasional support
- Muhamad M. N. Nadzri
- places cost of living, GST and 1MDB as the period's three defining issues, with cost of living foremost
Others centre different mechanisms:
- Kai Ostwald, Paul Schuler and Jie Ming Chong
- find that three-cornered fights neither clearly helped nor hurt Barisan Nasional and emphasise the UMNO elite split that brought Mahathir Mohamad into the opposition coalition
- Merdeka Center's estimates
- of a three-way split in the Malay vote are read by some commentators as evidence that no single issue decided the result
The argument did not end with the repeal. Ministry of Finance figures show SST collecting on average about half what GST did, which it attributes to a narrower base. Named analysts differ on full abolition:
- Anushka Shah of Moody's, Anand Chelliah of Baker Tilly Malaysia and Yeah Kim Leng of Sunway University
- have each questioned full abolition, two of them suggesting a lower rate instead
- Amarjeet Singh of Ernst & Young
- framed abolition as delivery of an election promise with SST 2.0 filling the revenue gap
Narayanan and Abdul Rais, writing in 2024, put the same point as a question of sequencing rather than of the tax itself: on their account it was the speed of implementation and the lack of preparation for the effect on prices and poorer households, not the design of a value-added tax, that turned the measure into a political liability.
What the sources say
The law and the announcement
25 October 2013
Prime Minister and Finance Minister Najib Razak announced in the 2014 Budget speech, tabled in the Dewan Rakyat on 25 October 2013, that a Goods and Services Tax would be introduced at a rate of 6% with effect from 1 April 2015, replacing the existing sales tax and service tax with a single tax.
The 2014 Budget Speech by YAB Dato' Sri Mohd Najib Bin Tun Haji Abdul RazakBudget 2014: GST at 6% from April 2015Najib unveils Budget 2014
9 June 2014
The enabling statute is the Goods and Services Tax Act 2014 (Act 762), which received royal assent on 9 June 2014 and was published on 19 June 2014.
1 April 2015
GST came into operation on 1 April 2015 at a standard rate of 6%, and the sales tax and service tax it replaced were abolished on the same date.
The case the government made for it
In the same speech Najib Razak set out the government's reasons for the change: the existing sales tax and service tax had "certain weaknesses such as the impact of double taxation on consumers, the absence of full tax relief on exported goods and transfer pricing issue", which "ultimately will result in losses to the consumers and the Government". He gave the example of a carbonated drink bought in a restaurant attracting both sales tax and service tax, and said that under GST "consumers will only need to pay tax once and the price of goods should be cheaper".
The 2014 Budget Speech by YAB Dato' Sri Mohd Najib Bin Tun Haji Abdul Razak
He said GST "is not a new tax" but a replacement for two existing ones, that the government had studied the question for several years and consulted chambers of commerce, investors, economists, academics, consumer associations and NGOs, that low inflation of about 2% made it "the best time to implement GST", and that more than 160 countries had already adopted GST or VAT. He also said that "certain irresponsible groups tried to take advantage by confusing the general public" by claiming prices would rise and the poor would bear the burden.
The announcement was accompanied by a package of transitional measures for households: a one-off RM300 cash payment to BR1M recipient households; a reduction of individual income tax rates by 1 to 3 percentage points, which the speech said would take 300,000 existing taxpayers out of tax altogether and generally remove liability for families earning RM4,000 a month; and a raising of the threshold for the top rate from chargeable income above RM100,000 to above RM400,000, with the maximum rate cut from 26% to 24-25%. These were stated to take effect from 2015.
A parallel package was announced for businesses: corporate income tax cut by one percentage point from 25% to 24% and the small and medium company rate from 20% to 19%, accelerated capital allowances on accounting software and ICT equipment, further tax deductions for GST training, a RM100 million training grant and RM150 million in assistance to SMEs for accounting software. The speech also noted the rate was set at 6% with a 17-month lead time before the 1 April 2015 start.
How the tax worked
GST was a multi-stage consumption tax charged on the supply of goods and services in Malaysia and on imports, levied by registered businesses in the course or furtherance of business.
Goods and Services Tax (GST) Governance in the Malaysian New Tax EnvironmentMalaysia – The Resurrection of Sales and Services Tax
Registration was mandatory for businesses whose taxable turnover exceeded RM500,000 over a 12-month period, with businesses below that level able to register voluntarily; registration opened before the start date, from 1 October 2014.
Guide on RegistrationImplementation of Malaysia GST Requires Businesses to Register Starting October 1Registering for GST
A range of everyday items, including some fresh foods, water and electricity, were zero-rated, and some supplies such as education and health services were exempt.
What is GSTA guide to GST in Malaysia: Sales and Service Tax
Section 54 of the GST Act 2014 established a Fund for Goods and Services Tax Refund, incorporated into the Second Schedule to the Financial Procedure Act 1957. Section 54(2) provided that "there shall be paid into the Fund the amount of tax collected under this Act as may be authorized by the Minister", and section 54(5) provided that, notwithstanding subsection (2), "the Minister may authorize the payment into the Consolidated Revenue Account in the Federal Consolidated Fund of all or part of the moneys of the Fund".
A registered business's entitlement to a refund of excess input tax arose under section 38 of the Act rather than under section 54, and section 38(8) required any such refund to be made "within the prescribed time" — a period fixed by regulation, not stated in the Act. The Goods and Services Tax (Repeal) Act 2018 likewise treats input tax refunds as arising "under section 38 of the repealed Act".
Goods and Services Tax Bill 2014Goods and Services Tax (Repeal) Act 2018 (Act 805)
Revenue
Ministry of Finance figures put GST collection at RM37.7 billion in 2015 (a nine-month year), RM55.7 billion in 2016, RM60.5 billion in 2017 and RM30.9 billion for January to May 2018, a cumulative RM184.8 billion over the tax's life on the MoF's consumption-tax basis.
Collection Of Consumption-based Tax Lower After SST Reimposition — MoFEconomic Report 2016/17: Slight uptick in GST collection for 2017
Najib Razak said in January 2018 that the Royal Malaysian Customs Department collected about RM44 billion in GST in 2017; The Edge later reported the 2017 GST figure as RM44.35 billion against RM23.1 billion in 2018.
Customs Department collects RM44bil from GST in 2017: NajibWas PH right to abolish GST?
The RM60.5 billion and roughly RM44 billion figures reported for 2017 are not like-for-like final collection totals: the 2018 federal-revenue estimates gave RM41.5 billion for 2017 and projected RM43.8 billion for 2018, while a later Finance Ministry parliamentary response reported RM60.5 billion collected in 2017.
The enacted Goods and Services Tax Act 2014 (Act 762) is publicly available from the Royal Malaysian Customs Department. Section 54(2) provides for amounts authorised by the Minister to be paid into the GST Refund Fund, while section 54(5) permits the Minister to authorise payment of all or part of the Fund’s money into the Consolidated Revenue Account.
The Ministry of Finance stated that average annual SST collection after 2018 was 51.6% lower than under GST, attributing the gap to SST's narrower base — about 41% of goods and services against about 76% under GST.
Collection Of Consumption-based Tax Lower After SST Reimposition — MoFMalaysia – The Resurrection of Sales and Services Tax
Opposition, election and repeal
1 May 2014
Street protests against GST were organised before implementation, including a May Day rally in Kuala Lumpur on 1 May 2014 that Malaysiakini reported at about 50,000 participants and police estimated at 15,000, organised by a coalition of NGOs with opposition party support.
Over 50k throng anti-GST May Day rallyNo to Goods and Services (GST) Tax
1 May 2015
A further anti-GST rally was held in Kuala Lumpur on 1 May 2015, a month after implementation, and was followed by arrests including of Parti Sosialis Malaysia secretary-general S. Arutchelvan, former Bar Council president Ambiga Sreenevasan and MP Anthony Loke.
Malaysia's Post-May Day CrackdownMalaysia: Protest letters needed! May Day protesters arrested
Abolishing GST was the first of Pakatan Harapan's ten promises for its first 100 days in the coalition's 2018 manifesto: "Abolish the GST and take steps to reduce cost of living."
Pakatan Harapan manifesto (English)Pakatan pledges to fulfil 10 promises within 100 days of GE14 victory
9 May 2018
After Pakatan Harapan won the general election on 9 May 2018, the GST rate was set to 0% from 1 June 2018, and GST was formally repealed by the Goods and Services Tax (Repeal) Act 2018 (Act 805), with SST reintroduced from 1 September 2018 under the Sales Tax Act 2018 and Service Tax Act 2018.
Goods and Services Tax (Repeal) Act 2018 (Act 805)Repeal Of The Goods And Services Tax Act 2014Malaysia GST to SST transition rules
31 May 2018
Finance Minister Lim Guan Eng said in 2018 that RM19.4 billion in GST refunds were outstanding as of 31 May 2018, affecting 121,429 companies and individuals, while the refund fund held only about RM150 million; he also said the Public Accounts Committee and the Attorney-General had concluded that depositing GST collections into the Consolidated Revenue Account instead of the refunds fund breached sections 54(2) and 54(5) of the GST Act 2014. The published reporting does not set out the reasoning behind that conclusion, and section 54(5) on its face permitted such a transfer where the Minister authorised it, so what the two bodies found to be defective — the absence of authorisation, the amounts involved, or something else — is not on the public record in these sources.
Guan Eng: RM19.25b shortfall in GST refunds as money used for other purposesPAC report confirms GST law was brokenRM18 bil in GST refunds missing
Where accounts differ
Suresh Narayanan and Abdul Rais Abdul Latiff argue in Asian Economic Papers (2024) that GST was implemented hastily to contain deficits and debt, that inadequate preparation for its effect on prices and poorer households produced widespread discontent, and that grievance against the tax "turned into a tax revolt" before the 9 May 2018 election.
The Untimely Demise of the Goods and Services Tax (GST) in Malaysia: A Postmortem and the Way Forwardrecord of the same article
Bridget Welsh has argued that poor implementation of GST fed inflation that hit vulnerable Malaysians and eroded long-standing support for Barisan Nasional, alongside the 1MDB affair.
Bridget Welsh's assessment as reported in Malaysia Baharu: Five Years On From GE14
Muhamad M. N. Nadzri writes that the top three issues of the 2013–2018 Najib administration were the high cost of living, the GST and 1MDB, with cost of living the single most important issue for voters at GE14.
Kai Ostwald, Paul Schuler and Jie Ming Chong reach a different emphasis: their counterfactual simulations conclude that the opposition split and three-cornered fights "neither dramatically helped nor hurt the BN," and they stress an elite split within UMNO that let Mahathir Mohamad offer continuity to Malay voters without Najib Razak.
Merdeka Center's estimates of the GE14 Malay vote — roughly 25–30% to Pakatan Harapan, 35–40% to Barisan Nasional and 30–33% to PAS — are used by some commentators to argue that vote-splitting among Malay voters, rather than GST alone, shaped the outcome.
Merdeka Center estimates as reported in Winning the Malay and bumiputera votesReport: 95% Chinese but less than 30% Malays voted for PH
Whether abolition was the right response is itself disputed among named analysts: Anushka Shah of Moody's Investors Service warned of a lasting hit to revenue collection and greater reliance on oil-related revenue; Anand Chelliah of Baker Tilly Malaysia and Yeah Kim Leng of Sunway University each suggested lowering the rate rather than removing the tax; Amarjeet Singh of Ernst & Young framed abolition as fulfilling the new government's promise, with SST 2.0 introduced to address the revenue gap.
Before the election, at least one economist argued in the press that Pakatan Harapan's promise to abolish GST would itself incur costs; the claim was disputed at the time.
Economist: Pakatan's promise to abolish GST will incur more cost
The scale of the refund shortfall was contested in public argument at the time, with commentators questioning the framing used by the Finance Minister.
Contemporary reports conflict on the number arrested after the 1 May 2015 anti-GST rally, reporting 59 arrests on 1 May and 29 people in custody the following day; no authoritative crowd count or complete public final-disposal record for every arrest has been located.
Model-based analyses estimate GST’s distributional effects by household-income group, but no single comprehensive official incidence study has been located that settles the overall burden after exemptions, zero-rating, transfers and price effects.
Common questions
When did GST start and end in Malaysia?
GST started on 1 April 2015 at a standard rate of 6%, replacing the sales tax and service tax. After Pakatan Harapan won the general election on 9 May 2018, the rate was set to 0% from 1 June; the tax was then repealed by the Goods and Services Tax (Repeal) Act 2018, and SST returned from 1 September 2018.
Goods and Services Tax (Repeal) Act 2018 (Act 805)Malaysia GST to SST transition rules
Was GST a new tax?
GST replaced the sales tax and service tax with a single tax rather than simply adding a third tax. Najib Razak said it was “not a new tax” and argued that the older taxes had weaknesses including double taxation on consumers, incomplete relief for exported goods and transfer-pricing issues. He said a consumer would pay tax once under GST in the restaurant carbonated-drink example he gave.
The 2014 Budget Speech by YAB Dato' Sri Mohd Najib Bin Tun Haji Abdul Razak
What items were exempt or zero-rated under GST?
Some everyday items and services were not treated the same way as standard-rated supplies. Certain fresh foods, water and electricity were zero-rated, while supplies including education and health services were exempt. GST otherwise applied as a multi-stage consumption tax to supplies of goods and services in Malaysia and to imports, when made by registered businesses in the course or furtherance of business.
What is GSTA guide to GST in Malaysia: Sales and Service Tax
Why did the government introduce GST?
The government said GST was intended to replace sales and service tax because those taxes created double taxation for consumers, did not give full tax relief on exported goods and raised transfer-pricing issues. Najib Razak also said the government had studied the change for several years, consulted business and civil-society groups, and chose a period of inflation of about 2% for implementation.
The 2014 Budget Speech by YAB Dato' Sri Mohd Najib Bin Tun Haji Abdul Razak
Why was GST abolished?
GST was abolished after Pakatan Harapan won the 2018 general election, having made abolition its first promise for the coalition’s first 100 days in office. The GST rate was reduced to 0% from 1 June 2018, then the tax was formally repealed and SST was reintroduced from 1 September.
Pakatan Harapan manifesto (English)Goods and Services Tax (Repeal) Act 2018 (Act 805)
Did GST cause the 2018 change of government?
There is no single account in the record. Suresh Narayanan and Abdul Rais Abdul Latiff argue that grievance over GST became a tax revolt, while Bridget Welsh links its implementation and inflation to weaker Barisan Nasional support alongside the 1MDB affair. Kai Ostwald, Paul Schuler and Jie Ming Chong instead emphasise an elite split within UMNO, and some commentators point to a three-way split in Malay voting.
The Untimely Demise of the Goods and Services Tax (GST) in Malaysia: A Postmortem and the Way ForwardTriple Duel: The Impact of Coalition Fragmentation and Three-Corner Fights on the 2018 Malaysian ElectionMerdeka Center estimates as reported in Winning the Malay and bumiputera votes
Still open
- What authoritative crowd count and complete public final-disposal record exist for the arrests after the 1 May 2015 anti-GST rally?
- What comprehensive incidence analysis measures GST’s overall burden across income groups after exemptions, zero-rating, transfers and price effects?