KUALA LUMPUR (June 7): Malaysians should not worry too much about the reimposition of the goods and services tax (GST), but the concern is more about whether the nation has a strong economic recovery after the Covid-19 pandemic, according to James Cheo, HSBC global private banking and wealth Southeast Asia chief investment officer.
While the pandemic and its disruptions have forced prices to be extremely high along with inflationary phenomena, applying the GST in times of inflation would drive up the prices of goods and services even further, and consumers might pause some purchases in the short term, he said during HSBC's 2H2022 Investment Outlook virtual briefing on Tuesday (June 7).
“But the question is, how would it affect consumption? Would it really curtail consumption over [the] long term? My [answer] is no. It really depends on the strength of the economy, wage growth [and] the long-term prospects of the productivity gains of the country, and I think Malaysia has all these good tailwinds going for it," he said.
"In that sense, Malaysians should not worry so much about the GST increase. So I think what's important is that ultimately, the reopening of the economy is strong. I think those factors matter more than the increase in consumer tax. Overall, the increase in GST is seen in many markets around the world, not just in Malaysia but also in Singapore,” he added.
Prime Minister Datuk Seri Ismail Sabri Yaakob said on Sunday (June 5) that the government was still studying the possibility of reintroducing the GST and had not yet made a decision.
The prime minister said the GST is capable of broadening the country's revenue base and the government does not rule out the possibility of its reintroduction as it is an effective means of increasing national income and combating inflation and the rising cost of living.
In March this year, the Ministry of Finance considered the reintroduction of the GST as part of a comprehensive tax reform to strengthen the country's revenue-raising capacity. The central bank, Bank Negara Malaysia, also supported the idea of reintroducing the GST as it would ease the heavy financial burden on the government.
The GST was first introduced in Malaysia on April 1, 2015 by the Barisan Nasional government at 6%. GST was suspended on June 1, 2018 and finally abolished and replaced by sales and services tax on Sept 1, 2018 by the Pakatan Harapan government.
The current sales tax rate is 5% and 10%, while the service tax is 6%.