PRICES will not go up with the introduction of the sales and services tax (SST) as long as there is effective enforcement against profiteering, said an economist.

Affin Hwang capital chief economist Alan Tan Chew Leong said this as a debate rages over whether the new tax regime starting September would cause inflation to spike.

The new Pakatan Harapan government has set the SST at 5% and 10% for the sale of certain goods, and a uniform 6% for selected services.

Opposition politicians have repeatedly said the 10% rate will lead to inflation, opposite to the  government’s promise to bring down the prices of goods.

The SST, said Tan, would only affect 38% of all goods and services in the country compared with the goods and services tax (GST), which applied to more than 60% of the same.

“Each 1% of the SST will only net the government RM2 billion in tax revenue versus RM3.5 billion for every 1% of the GST,” Tan told The Malaysian Insight.

“The SST has a narrow base. So we don’t expect inflation to go up. There can be some pressure on prices, but this will depend on enforcement by the Domestic Trade (and Consumer Affairs) Ministry against profiteering.

“So, it all boils down to effective enforcement to ensure that the SST is well-implemented,” said Tan.   

The unpopular GST introduced by Barisan Nasional in 2015 was a multi-stage tax that affected every link in the  supply chain. It was zero-rated when Pakatan Harapan took over Putrajaya.

If it had remained, the GST would have collected RM44 billion for the government this year. In comparison, the SST is levied against manufacturers and importers, and is expected to collect RM21 billion this year.

In defence of the SST, Damansara MP Tony Pua had said the inflation rate reached 3.1% in 2015 as a result of the introduction of the GST.

Prior to its introduction, inflation was at 1.7% and 2.1% in 2012 and 2013, respectively.

After the government zero-rated the GST on June 1, the inflation rate dropped to 0.8%. – July 23, 2018.