Wed05232018

LAST_UPDATEWed, 23 May 2018 11am

GST; From 6% to 0%, How Will It Affect Malaysians?

Yesterday, the Ministry of Finance (MoF) announced that starting from 1 June, the rate of the Goods and Service tax (GST) will be reduced to 0% from the current 6%, and the old Sales and Service Tax (SST) will be reapplied.

The announcement was made through a press release from the ministry, and it marks the first of Pakatan Harapan’s 10 things to deliver in 100 days after taking over the government.

In the statement, the ministry also noted that although the GST rate is now at 0%, it didn’t mean that retailers can completely ignore their documentation, as the documentation regulations remain the same.

And people are already celebrating the news of the reduction of GST rates.

Malaysian Digest spoke to Nurul Aina Ruzana, a full time housewife, and she says that she welcomes the GST rate reduction.

“Now that the GST has been abolished, I look forward to shopping for groceries and household items at a cheaper price. Before this, even though the GST is only at 6%, when combined with the higher cost of living it made it really hard for some people to make ends meet. So I hope that the reduction of GST can help reduce some of our burden,” she explained.

The news of GST rate’s reduction was not only met with happiness by the consumers, but even the retailers are happy with the news.However, the sudden announcement did leave many businesses with unanswered questions especially for those dealing in import and export as well as having goods in transit,

Nazmi Nasir, who runs a small cleaning service, says that the zero rated GST will help his business tremendously.

“The first way in which the zero rated GST will positively affect my business is that now, I don’t have to charge my customers for GST anymore. So even though the price I charge for the service might be the same, but due to the zero rate of GST, it will be cheaper for the customer.

“The second way is that I don’t have to go through the troublesome process to claim back the amount I paid in GST. Usually the process can take some time. Now that GST is zero rated, although I still have to complete the documentation, I no longer have to wait for the money, which makes it easier for me,” said Nazmi.

But of course, with the new zero rated GST, the question that will be playing in everyone’s mind will be undoubtedly be, how will it affect the country’s finances?

Local media reports cite economists as noting that prices may go down, boosting consumer spending in the short term, provided traders actually cooperate but ththe only they also cautioned that GST is not the only factor that cause high prices.

Other factors citred include the foreign-exchange rate, which have a knock-on effect on the prices of imported goods as well.

To answer this question, Malaysian Digest spoke to Professor Dato’ Dr Shazali Abu Mansor, an economics expert from Universiti Malaysia Sarawak.

And according to him, the zero rate on GST will definitely promote economic growth.

“First, the zero rate of GST means that the RM43 billion which the Customs department targeted to be collected as revenue for GST this year will be pumped back into the economy, which will improve the purchasing power for the people.

“The people will be able to get more value out of their money. It will also help small businesses whose business had been suffering due to GST. The zero rate of GST will be able to persuade more people to go out and shop, now that they no longer have to pay for GST,” said Professor Shazali.

But he added that the reduction of the GST rate means that the government is losing up to RM43 billion in revenue. So just how are they going to offset this loss?

Professor Shazali says that there are a myriad of ways the government can deal with that loss.

”They will still collect revenue from the Sales And Service Tax, although it will be lower.

“But, that’s where the rest of their plan will be important. They can offset the loss by reviewing the mega projects in the pipeline, or perhaps the most important thing to do, is for them to review all the leakages of money and funds.

“Although it might be small, but the leakages are aplenty, leading to big losses for the government,” Professor Shazali opined.

Even though he said that the economic prospects look bright, he cautioned that the government should toe the line carefully as they are now in unchartered horizons amid international financial analysts observations that drastically cutting government spending will inevitably result in slower economic growth all round.

-mD