Overall tax burden lighter with SST, says RAM Ratings

While execution will take time, these moves by the govt are deemed positive for the retail sector

By FARA AISYAH /  Pic By HUSSEIN SHAHARUDDIN

The reintroduction and reimplementation of the Sales and Services Tax (SST) is expected to lighten the overall tax burden that has to be borne by consumers.

RAM Rating Services Bhd (RAM Ratings) head of consumer and industrial ratings Kevin Lim said consumer spending and retail sales are envisaged to normalise some- what after the reinstatement of SST.

“However, the overall tax burden on consumers will be considerably lighter, with the government’s tax collection estimated to come in at RM21 billion per annum, which is less than half of the amount collected through the Goods and Services Tax (GST),” he said in a statement last week.

RAM Ratings stated that the government has also pledged wide-ranging initiatives aimed at increasing the purchasing power of consumers, particularly lower-income households.

These measures include the reintroduction of a targeted fuel subsidy, as well as a medical subsidy, reduced excise duty on first-car purchases, the gradual abolition of expressway tolls and a higher minimum wage.

The agency also said while details are scant and execution will take time, these moves by the government are deemed positive for the retail sector.

RAM Ratings expects the retail sector to be among the prime beneficiaries of the country’s generally more upbeat consumer sentiment and the string of measures proposed by the new government to alleviate the rising cost of living — and hence, revised its negative outlook on the retail sector since October 2016 to ‘Stable’.

Domestic Trade and Consumer Affairs Minister Saifuddin Nasution Ismail said the removal of GST will inject about RM21 billion for consumers to spend, boosting retail spending, increasing public consumption and expanding the overall economy, said.

“The government was able to generate about RM42 billion in revenue with the implementation of GST. The target for SST is smaller around RM21 billion. Therefore, the difference of RM21 billion now belongs to the consumers, giving them a higher purchasing power.

“The government’s revenue is not contributed solely by the tax implementation, but also by private consumer demand and spending,” Saifuddin Nasution told reporters at the Malaysia International Retail and Franchise Exhibition in Kuala Lumpur last week.

He, however, added that the government must take into account how the impact of the tax implementation will have on the people’s wellbeing.

On the other hand, an independent public policy research and advocacy organisation also cautioned that the switch to SST might also have its downside.

Galen Centre for Health and Social Policy founder and CEO Azrul Mohd Khalib said the move might result in the elderly population being vulnerable to fewer government programmes or social support infrastructures as the tax will generate significantly reduced revenue for the government compared to GST.

He said an estimated 15% of the Malaysian population will be classified as senior citizens above the age of 60, by 2030.

“Already deemed as a country which is ill-prepared to deal with an ageing population, this development puts the ageing population at risk.

“Social security safety nets, welfare systems and pension funds will be significantly stretched and overtaxed,” he said in a statement last week.

He added that demands will only grow greater as the years go by, and that Malaysia does not seem to have a long-term sustainable plan on how such needs could be funded.

Azrul also said the escalating healthcare costs, a shrinking productive workforce and an infrastructure which is more favourable to those who are younger and contributing to the economy, would make meeting the financial and social service burdens of the growing numbers of senior citizens a daunting task.

Combined with the possibility of reduced or even withdrawal of funding for long-term care and support, the situation represents a demographic crisis in the making.

Azrul also said the resulting cut-backs and austerity measures in response to reduced spending levels, could be mitigated by efforts including increasing rates and expanding coverage, broadening the tax base, or even increasing corporate and personal taxes, among others.