Malaysians can enjoy cheaper goods and services for many basic necessities if the government implements the goods and services tax (GST), replacing the existing sales and service tax (SST).

The tax, likely to be implemented by 2015, will see a proposed rate of four per cent to replace the current narrowly-applied 10% sales tax and six per cent services tax.

The GST will be levied on the consumption of goods and services at all stages of the supply chain. If implemented, some 40 basic food necessities, including rice, sugar, milk powder and flour will be listed as zero-tax items, while essential services, such as healthcare, may be classified as tax-exempt.

Most of the items were currently being taxed under the SST and the transition to GST could ease burden on the poor, Secretary-General of Ministry of Finance, Mohamad Irwan Serigar Abdullah, was quoted as saying.

The GST will ensure that the prices of the items will not increase. Besides that, not all products will be charged the full tax under the proposed GST as certain products will be charged only half of the GST rate.

“The GST is a must, it’s not an option,” Irwan Serigar said, adding that should the new tax regime be implemented, the government was confident of trimming the fiscal deficit of gross domestic product by 2015 and hitting a surplus by 2020.

Meanwhile, MIDF Amanah Investment Bank Bhd Senior Vice-President/Head of Research, Zulkifli Hamzah, said although the implementation of GST was inflationary, it would only be in the short term as consumption patterns adjusted over time.

“We expect the GST to have a transitory inflationary impact on prices, similar to the evidence found in many countries which have introduced the tax.

Mohd Irwan Serigar Abdullah

“The inflationary impact of the GST will depend on the rate to be decided, exemptions and parallel measures to mitigate price rises,” he told Bernama.

The Malaysian Customs Department is of the view that GST’s inflationary impact will be minimal as basic and essential foodstuff will be zero-rated and public amenities will be exempted.

Another factor is the lower production cost as GST paid on inputs is claimable by businesses, while savings from the input tax credits should be passed on to the consumers in the form of lower prices.

GST, a broad-based consumption tax, or value-added tax, was first tabled at the Dewan Rakyat in Dec 16, 2009 to replace the current SST, but was withdrew last year for amendments.

The transition will be part of the fiscal reforms undertaken by the government to reduce fiscal deficits and achieve a neutral balanced budget by 2020, helping the country to move towards a high-income economy as well as to achieve a developed nation status.

Economist opined that now was the right time to implement the GST as part of efforts to bolster government revenue. Once implemented at a revenue-neutral rate of four per cent, the new tax was estimated to rake in a revenue of RM18 billion, which was quite similar to the current revenue of RM16 billion to RM17 billion from sales and services taxes at an average rate of seven per cent.

It is anticipated that Prime Minister Datuk Seri Najib Tun Razak will announced the GST in the Budget 2014 on Oct 25. The GST would take 14 months to be implemented after it was announced.