AS Barisan Nasional mulls pledging in its manifesto to review the Goods and Services Tax (GST), an economist said the consumption tax could be reduced in certain areas.

Professor Yeah Kim Leng said the overall tax burden on consumers could be reduced, with the GST rate going down 1% or 2% from its current rate of 6%.

“A reduction of the GST rate to 4% would ‘return’ or increase disposable income by about RM15 billion,” he told The Malaysian Insight.

The Sunway University professor and economic studies director of the Jeffrey Cheah Institute on Southeast Asia said this meant the federal government would have less revenue to spend, but the move could be justified.

“It’s a trade-off that can be justified on account of the likely increase in government revenue from higher crude oil prices as well as the multiplier effects of increased consumer spending.”

Yeah said another area the government could look into in the review was widening the coverage of exemptions or zero-ratings, particularly for the essential goods and services.

The move, he said, would alleviate the cost of living of the low income group.

“But it will essentially benefit everybody. The trade-off is a narrowing of the tax base while prices may not come down due to down stickiness.”

A third area of the review, Yeah said, could focus on improving administrative efficiency, such as speeding up GST refunds so that businesses would not factor in the cost of the working capital tied up to raise prices.

On setting different rates, Yeah said: “It may be confusing and contentious, particularly higher rates for products and services consumed by the rich.”

The economist was asked to comment on The Malaysian Insight’s report this morning that BN was considering a review of the GST. 

The review of the tax might see the removal of the standardised 6% rate across all goods and services, and in its place, a system that charges differing rates for different segments.

The government is also looking at exempting several services from GST, such as utilities, housing, public transport and education.

According to sources, BN was also mulling to introduce more income tax relief as part of its election manifesto.

On the other side of the political divide, Pakatan Harapan has been attacking the policy to implement GST, blaming the tax as the cause of the rising cost of living since it was enforced on April 1, 2015.

PH has pledged to scrap the GST within a 100 days if it came into power. 

But such a move means the PH-led federal government will have to find another source of income to run the country – a point made by Yeah during a recent seminar on the 14th Malaysian general election at the ISEAS-Yusof Ishak Institute in Singapore. 

He said a PH government will be hard pressed to find another source of income, as the GST contributed RM42 billion to the national coffers in 2017, against the old sales and services tax system (SST) which only collected about RM20 billion. 

“You can still try to find alternative sources of income such as reducing government expenditure through cutting on wastage.

“But what is more important is that the GST is an efficient, broad-based tax system. Whereas the SST is only meant for some consumers and for producers. It is less efficient,” he said. – March 29, 2018.