KUALA LUMPUR: Zero-rated goods and services tax (GST) can help boost buying sentiment among consumers, as economists view that prices of products and services will be decreasing starting June 1, 2018.
Putra Business School Manager of Entrepreneurship and Community Development and Impact senior lecturer Dr Ahmed Razman Abdul Latiff said prices of goods and services might go down further since businesses no longer have to incur compliance costs in term of hiring consultants and training staff to do the GST filing especially among the small and medium enterprises.
“However, more importantly is to ensure that the enforcement agencies are continuously monitoring the prices of products and services to avoid businesses profiteering from this situation,” he told NSTP Group yesterday.
MIDF Amanah Investment Bank chief economist Dr Kamaruddin Mohd Nor said zero-rated GST will help improve consumers’ purchasing power.
“Yes it will boost consumer sentiment and is positive to the domestic economy,” he said.
However, on decreasing prices of goods and services, Dr Kamaruddin said it will depend on various factors including cost structure, input factors, foreign exchange rate, and other variable costs.
“Thus, the confluence of these factors will determine the price of the item,” he said.
On macroeconomic impact, Maybank Investment Bank (IB) Research said based on this year’s GST revenue expectation of RM43.8 billion, the zero-rated GST implies GST revenue shortfall of RM25.6 billion on a simple pro-rated basis, equivalent to 1.8 per cent of gross domestic product (GDP) deterioration in budget deficit, which is targeted to be at 2.8 per cent of GDP this year under Budget 2018.
Maybank IB said the mitigating factor is the upside to Budget 2018’s oil-related revenue forecast of RM37.7 billion amid rising crude oil price.
To note, Budget 2018’s crude oil price assumption is US$52 per barrel against against year-to-date average of US$69 per barrel.
“Our sensitivity analysis is that every US$10 per barrel rise in annual average crude oil price will boost oil-related revenue by RM7 billion to RM8 billion.
“Further mitigation should come with the eventual reintroduction of the Sales and Services Taxes (SST) which previously earned the government RM17.2 billion on a full year basis.
“Furthermore, the budget deficit impact does not yet factor in potential low hanging fruits that include rationalisation in government spending to reduce wastages and leakages as well as from efficiency gains,” it said.
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keywords: GST, SST, value added tax, macroeconomic, gross domestic product, purchasing power