Economist: Malaysia On Right Track With GST

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SINGAPORE, Jan 17 – Despite facing criticism from various quarters, the Malaysian government’s decision to implement the Goods and Services Tax (GST) will benefit the nation as it gears towards becoming a developed nation, says Dr Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors.

“I think it is a positive move. Having a broad base with just one rate on all items will lead to a simpler sales tax system and one which is less distortionary as the tax system will no longer be penalising some goods and services over others.” Oliver said this should make life easier for businesses and it should also provide greater certainty of revenue flow for the government.

Asked whether the GST would lead to higher inflation, he said: “If it’s just replacing various other taxes then it should not be inflationary. “And if it’s raising more revenue which will be used to finance income tax cuts then any one-off boost to price levels will be offset by the impact of reduced income tax.”

Oliver said the introduction of GST in most countries was preceded by much debate and opposition, which usually all faded to nothing about a year after introduction as people realised it was actually a good move. “I suspect the same will happen here,” he said.

Prime Minister Datuk Seri Najib Razak first announced the GST implementation when tabling the 2014 Budget, giving a 17-month grace period for stakeholders and industry players to become GST ready. In his 2015 Budget, Najib boldly confirmed that the government would go ahead with its plans on implementing the GST. Come April 1, 2015, the sales tax and service tax will be abolished and replaced with the GST at the rate of 6%.

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