Budget 20014: Start GST at 5%, says CCPS

Published: Friday October 25, 2013 MYT 12:00:00 AM 

Updated: Friday October 25, 2013 MYT 7:58:24 AM

PETALING JAYA: Agreeing with the need to introduce the goods and services tax (GST), the Centre for Public Policy Studies (CPPS) recommends for the GST to start at 5% and for the government to commit to a five-year timeline when introducing the consumption tax before reviewing it and possibly raising it by 2020.

CPPS said in a statement: “This commitment restricts the Government from arbitrarily increasing or removing the GST to promote price stability.

“Issues of leakages and a lack of transparency in public expenditure should be resolved more enthusiastically in order to build credibility in the eyes of the public regarding the Government’s fiscal adjustment plans.”

It said the cost to adjust consumption behaviour would be similar at 4% to 5% GST due to the lower rate compared with the current standard rate for sales and services tax (SST).

“The idea of introducing the GST may become a reality in the upcoming Budget 2014 with implementation starting within 18 to 24 months at an initial rate of 4%,” it added.

The institute also said the consumption tax was set to replace the existing SST, which is narrowly applied and did not constitute a viable option for the Government’s objective of achieving fiscal sustainability.

“Moreover, the Government could raise tax revenue meaningfully with an expected addition of RM8bil and reduce the chances of having to revise the rate upwards at least for the next five years,” it noted.

It offered seven policy recommendations to minimise irresponsible profiteering activities and strengthen the Government’s credibility in pushing through the tax reform. Among the measures are: enforcing the display of actual amount of GST payable on the price tag as well as labelling GST exempted items in order to curb price manipulation.

“Also, the Government should encourage establishment of local consumer associations to assist in gathering reports of price fixing since local households are more sensitive to price changes than enforcement agencies at the national level,” it said.

It also recommended for the Government to reinvest revenue gains from GST to improve the quality of public services.