Hybrid GST-SST System: Economist Dr Carmelo Ferlito Raises Concerns

KUALA LUMPUR, 20 AUGUST 2026 —

Malaysia’s planned hybrid GST-SST tax system faces scepticism from an economist who argues it will neither simplify nor stabilise tax collection.

Ferlito told The Rakyat Post that taxation works best when it is simple, transparent and stable. He said GST remains structurally superior to SST because it offers a broader tax base, greater transparency and fewer distortions through the production chain.

The government reintroduced SST in 2018 after scrapping GST amid public opposition. Now, under Prime Minister Anwar Ibrahim’s unity government, officials are studying ways to incorporate GST features into SST. Finance Minister II Datuk Seri Amir Hamzah Azizan has been asked to conduct a comprehensive review before presenting findings to the Cabinet.

Ferlito dismissed the idea of a “hybrid” system. The key efficiency of GST comes from its input-tax-credit mechanism, which lets businesses offset tax paid on inputs against tax collected on sales. He said this mechanism cannot be grafted onto SST without effectively rebuilding GST itself.

“There is a limit to how much GST efficiency can be imported into SST without turning it into GST,” he said. He warned that attempts to broaden the tax base while shielding large parts of consumption would make the system more complex and vulnerable to lobbying.

Ferlito also criticised plans to keep advance corporate taxation, which requires firms to pay taxes on estimated profits before they are realised. “This places unnecessary pressure on companies, especially small and medium enterprises,” he said. He argued that if GST is reintroduced, it should be part of a wider reform that reduces other taxes, particularly those that distort investment decisions.

He acknowledged that consumption taxes can weigh more heavily on lower-income households because they spend a larger share of income. But he said the answer is not to complicate the tax structure. “Keep the tax simple and reduce income taxes,” he said. “A broad GST with carefully targeted rebates is more equitable than an increasingly convoluted SST with endless exemptions.”

The government insists the review is technical and not rushed. Communication Minister Datuk Seri Fahmi Fadzil said the study will examine lessons from the previous GST implementation and weaknesses in the current SST system. “No decision has been made,” he said. “This is a technical exercise.”

Ferlito cautioned against using tax reform solely to raise revenue. “Malaysia does not need a better tax-collection machine; it needs fiscal discipline,” he said. “If GST were reconsidered, I would support it as part of a revenue-neutral reform that reduces other, more distortionary taxes—not as an instrument for continuously expanding government revenue.”

Related: Pacific Research Centre of Malaysia · Dr Carmelo Ferlito · Kuala Lumpur