GST, HVGT, could resurface as part of Budget 2025 alongside RON95 rationalisation, says RHB analyst. Are we ready?

If you’ve relished waving goodbye to GST in 2018 and other contentious policies, be ready to see some of these resurface again as the government prepares to table their financial plans for next year and beyond as part of Budget 2025.

Economic hawks such as those in RHB Investment Bank Bhd, who are closely monitoring the upcoming Budget 2025, says that the government is expected to unveil crucial details regarding the rationalisation of RON95 petrol subsidies and the potential reintroduction of the Goods and Services Tax (GST), according to Bernama.

These measures are seen as part of the government's broader strategy to strengthen Malaysia's fiscal framework and economic stability. According to RHB IB analyst Alexander Chia, the Unity Government led by Prime Minister Datuk Seri Anwar Ibrahim has demonstrated resilience nearly two years after the 15th General Election.

Chia expressed confidence that the government would make significant strides in its efforts to reform subsidies, expand the tax base, and ultimately reduce the fiscal deficit, highlighting those two critical initiatives that remain undecided.

The government is scheduled to present Budget 2025 on October 18th. The reintroduction of GST, if it occurs, is likely to be integrated with the full implementation of e-invoicing, a move aimed at enhancing tax collection efficiency and transparency.

GST, first introduced in April 2015 at a rate of 6%, had a notable impact on various sectors, including the automotive industry, where it led to reduced prices for some vehicles. However, the tax was abolished in 2018 following the rise of the Pakatan Harapan government, which replaced it with the Sales and Service Tax (SST) at a rate of 10%.

The potential reintroduction of GST is seen as a crucial element of the government's strategy to broaden the tax base. Chia noted that this move, alongside the rationalisation of RON95 petrol subsidies, could significantly impact the nation's fiscal health by providing the necessary revenue to reduce the fiscal deficit.

RHB projects that the fiscal deficit target could be lowered to 3.5% of the country's Gross Domestic Product (GDP) in 2025, down from 4.3% in 2024. In addition to these key initiatives, Budget 2025 is expected to emphasise fiscal prudence and target support for low-income groups, an approach that aligns with the government's broader commitment to reforms.

There is also speculation that Budget 2025 might include the long-awaited High-Value Goods Tax (HVGT), although details remain scarce. Initially planned for implementation in May, with a threshold of RM200,000 for cars and a tax rate between 5% to 10%, the HVGT was postponed to allow the government to refine its policies and legal frameworks.

If introduced, this tax could represent another significant step in the government's efforts to bolster its revenue streams and manage the country's financial obligations more effectively.

As the government prepares to unveil Budget 2025, all eyes will be on the potential reforms and their implications for Malaysia's economic future. RHB IB remains cautiously optimistic, anticipating that these measures will pave the way for a more robust and resilient economy.