KUALA LUMPUR: The government's move to set the Goods and Services Tax (GST) at zero per cent from June 1, will theoretically reduce prices.
Economists, however, said there were other factors such as currency exchange and administrative cost that will contribute to the price movement of goods and services.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the move will generally lower price of goods and services.
However, he told NSTP Group that the practice of some traders who refused to reduce the price in accordance with lower tax rate would be a challenge to keeping price low.
"Theoretically, with the GST rate being at zero level from the six per cent (currently), the price will drop.
"However, GST is not the only factor to higher price. There are also factors such as foreign exchange rate, meaning weakening ringgit, which will result in lower spending power for imported goods," he added.
The Finance Ministry today announced that the GST would be zero-rated from June 1, covering all local and imported goods.
This effectively scraps the consumer tax implemented by the previous government on April 1 2015.
The decision did not include goods and services listed in the Goods and Services Tax (Exempt Supply) Order 2014, which remain exempted from GST.
MIDF Amanah Investment Bank chief economist Dr Kamaruddin Mohd Nor said the move would spur consumer spending, and ultimately drive the domestic economy.
Meanwhile, Mydin Mohamed Holdings Bhd (Mydin) managing director Datuk Ameer Ali Mydin said the move generate higher corporate tax collection.
Ameer Ali said the government's revenue may be declining by about RM42 billion annually with the absence of GST but the move would allow the people to spend more.
"The move will give confidence to the people to spend and thus help to boost domestic consumption. This will allow the government to collect more tax from businesses," he said at the launch of Mydin's Girang Syawal Tiba 2018 campaign here today.