KUALA LUMPUR: The goods and services tax (GST) is more efficient and causes less economic distortions than the sales tax it will replace, said an economist.
Malaysian Rating Corp Bhd (MARC) chief economist, Nor Zahidi Alias, said the structure of GST will provide a strong incentive for businesses to register with tax authorities, and thus improve the efficiency of collection.
“One way it will benefit the economy is that GST is neutral with respect to market forces and businesses, unlike the sales tax,” he told Bernama.
Nor Zahidi said a proposed rate of seven per cent will have minimal impact on the prices in the medium and long term compared to the current sales tax of between five per cent and 10 per cent.
He said there was a possibility of higher inflation in the initial phase, especially if profiteering activities were not properly contained.
RHB Research Institute Sdn Bhd said the introduction of the GST will likely lead to a one-off spike in inflation, depending on the level of goods and services in the basket of the consumer price index (CPI) that will be affected.
The implementation of the GST was expected to add between 0.8 and two percentage points to the CPI, assuming about 20 per cent and 50 per cent of the goods and services in the CPI basket will be subjected to the four per cent GST, it said in a note.
In the 2013 Budget, the government said it was a national imperative to implement a new tax regime to ensure that its finances remained strong, it said.
Meanwhile, Nomura International chief economist for Asia ex-Japan, Rob Subbaraman, said the consumption tax could boost government revenue and reduce the fiscal deficit, which could also increase the current account surplus.
“A consumption tax should act to increase the current account surplus as it can reduce household consumption relative to income, thereby increasing personal saving,” he said.
Nomura, in its ‘Asia’s Rising Risk Premium’ report, said Malaysia’s current account surplus has narrowed significantly over the last two years, reaching a 10-year low of 3.7 per cent of the gross development product (GDP) in the first quarter of 2013 from over 10 per cent of GDP in 2011. — Bernama