Zero GST unlikely to reduce living costs

Cost of living may not subside considerably as most food items for the B40 income group have already been zero-rated


THE government’s decision to set the Goods and Services Tax (GST) at zero rate will not lead to significant reduction of living costs, according to Institute for Democracy and Economic Affairs (IDEAS).

IDEAS CEO Ali Salman (picture) said cost of living may not subside considerably as most food items and supplies that constitute a major part of household expenses for the bottom 40% (B40) income group have already been zero-rated.

These items — as prescribed in the GST (Zero-Rated Supply) Order 2014 — include livestock, fruits, vegetables, nuts, spices, fats and oil, bread, flour, sugar, as well as printed books and newspapers.

“While different baskets of the consumer price index such as food and non-alcoholic beverages, education, health, transport and housing services have shown continued increase over the last five years, the GST was not the single most important factor.

“Therefore, the government needs to take more significant measures to help reduce cost of living, but more importantly, it needs to invest more on policies to help people raise their income, while at the same time to safeguard against rise in fiscal deficit,” Ali told The Malaysian Reserve yesterday.

The Finance Ministry, in a statement issued on Wednesday, said the 6% tax will be zero-rated effective June 1 until further notice. It said all registered traders should observe the directive and ensure prices are in accordance with the Price Control and Anti-Profiteering Act 2011.

Meanwhile, concerns have been raised that the eventual abolishment of the GST will narrow the government’s revenue base and increase its reliance on oil-related revenues. Moody’s Investors Service Inc sovereign risk group VP cum senior analyst Anushka Shah maintained her view that plans to scrap the GST, if implemented without adjusting measures, will be credit negative.

“While revenue losses this year will be offset to some degree by higher oil prices, this development is unlikely to be a structural — or act as — a permanent substitute for the GST itself. The extent to which offsetting measures, if any, will help recover the revenue loss from the GST will allow us to determine the exact impact on Malaysia’s fiscal position going forward,” Anushka said in a statement.

The government plans to cushion the shortfall from the GST by introducing specific revenue and expenditure measures in due course. The government announced yesterday that the Sales and Services Tax will be reintroduced.

Ali said the government can compensate the loss by making cutbacks in its spending.

“One way is to cut down on the size of the government which the prime minister has mentioned by keeping a smaller Cabinet. Then, there also has to be a cut down on governmentlinked investment companies. Many of them need to be privatised to ease the fiscal pressure.

“Other things like foreign direct investments don’t really have a direct impact on the capital position because the money sits in the system and goes into the current account. However, all these things cannot be done overnight. There will likely be a short-term fall in government revenue,” he said.

With all the financial restructuring being made, Ali expects Budget 2018 to be revised soon. The annual fiscal blueprint, which was tabled in October last year, saw an allocation of RM280.25 billion for the year — of which RM234.25 billion was allocated for operating expenditure.

“It is only logical. The government will have to come up with a short term budgetary measure which will have to be tabled in Parliament,” he said.