goods as a whole, to obtain high revenue productivity, it would be necessary to tax services widely. SST is a beginning, but the government still appears to be reluctant to implement a comprehensive VAT covering all levels of production and distribution. In addition, the government may consider levying a separate VAT on selected luxury goods without providing a credit for input taxes paid on them.
Until such a comprehensive VAT is introduced, structural changes in the sales tax are likely to focus on such administrative measures as limiting the items and bodies or organizations exempted from the sales tax, improving the operations of the ring system, extending the sales tax to lower distribution channels, and expanding the scope of the service tax. If a comprehensive VAT and a complementary luxury sales tax are introduced as a package, there will be no need to alter the present structure of the excise taxes. Rate adjustment max however, need to be made from time to time.
Import Duties. As with the sales tax, the main structural changes are likely to focus on limiting the items and organizations, particularly those granted to government departments and public enterprises, exempted from import duties. The MIER Tax Reform Group has also suggested modifying the structure of tariffs to minimize variations in the effective rates of protection across products and sectors ( 1988). The group also suggested replacement of the existing export taxes on traditional commodities with a land tax.
The main burden of macroeconomic adjustment in Malaysia during the 1980s was borne by government expenditure and by nontax revenue. However, as Malaysia moves toward becoming an NIE by the end of the 1990s, both macroeconomic adjustment needs and fiscal requirements for becoming an NIE are likely to necessitate revenue-generating tax reform. The discussion in this chapter suggests that continued administrative improvements and reductions in exemptions from the present sales tax and import duties may generate some revenue. International competitiveness considerations will preclude significant additional revenue generation from the income tax. Therefore, the significant revenue generation option consists of a comprehensive VAT along with a luxury sales tax. Its design, structure, and timing will need to be carefully considered.