Economists urge Govt to speed up GST

Published: Tuesday October 8, 2013 MYT 12:00:00 AM 

Updated: Tuesday October 8, 2013 MYT 4:16:52 PM

BY JOHN LOH

Kenanga Research economist Wan Suhaimi (right) says
Singapore's GST implementation led to substantial reduction in corporate
and income tax, tripling of per capita income and drew large investments
and human capital, while Kenanga head of research Chan Ken Yew
thinks the introduction of GST might even lead to a rally on the local bourse.

KUALA LUMPUR: The sooner the better. That’s how economists feel about the goods and services tax (GST), whose unveiling is widely anticipated in Budget 2014.

Kenanga Research economist Wan Suhaimi Saidie said a comparative study on the broad-based tax in Australia, Singapore and Thailand showed a positive wealth effect, with the three countries experiencing three- and even four-fold increases in gross domestic product (GDP) per capita post-GST.

“It’s basic economic theory. As the system becomes more efficient across the supply chain, wages, prices and wealth can be distributed more evenly,” he told the press at a briefing yesterday.

Wan Suhaimi cited Singapore as having the best model for the GST implementation, which saw the city-state substantially reducing corporate and income tax, tripling per capita income and attracting large investments and human capital.

Kenanga Research is expecting an initial GST rate of between 4% and 7%, with 5% being the most likely.

The consumption-based tax, on which basic necessities would be exempted, could be introduced next July at the earliest or January 2015, the local research outfit said.

But Wan Suhaimi suggested that a quick implementation was crucial if the Government intended to stick to its deficit reduction target of 3% by 2015.

Ratings agencies, which have been keeping close tabs on Malaysia’s debt situation and dwindling current account surplus, are also in favour of the Government cleaning up its fiscal house, rather than being fixated on growth, which should come naturally with the recovery in external demand, Wan Suhaimi said.

According to Kenanga Research, a January 2015 timeline for the GST would result in an end-2015 deficit of 3.5%, off the Government’s target by 0.5%.

If the tax took effect next July, however, then the fiscal deficit is likely to be pared down to 3.1% by the end of 2015, its numbers show.

GST introduction might even lead to a rally on the local bourse, if the stock markets of Australia, Singapore and Thailand were any indication, Kenanga head of researchChan Ken Yew said.

Their benchmark indices soared shortly before the tax came into effect, as consumers hoarded goods and services to avoid paying higher prices, giving markets a short-lived sugar rush.

On his outlook for the market, Chan said he was adopting a “cautiously optimistic” approach, advising clients to buy on weakness – especially if the FTSE Bursa Malaysia KL Composite Index plunges below 1,745 points – and be selective in their stock picks.

Domestic liquidity was not at risk of drying up soon, Wan Suhaimi added, dismissing as overblown concerns of a mass capital outflow. “It was just a knee jerk reaction,” he said.

And despite the impending pullback of the US Federal Reserve’s easy money policies, which fear-mongers say will drive an unprecedented exit of foreign capital from emerging markets, Chan is taking a contrarian view.

“Foreign investors are returning to Bursa Malaysia. They turned net buyers again recently,” Chan said, noting that the still near-zero interest rates in most Western countries were a boon to monetary expansion.

On ways to play the market, Chan said blue chip laggards such as Telekom Malaysia Bhd and RHB Capital Bhd were poised to catch up due to yearend window dressing activities, while lower liners typically saw action in the final and first quarters of the year thanks to seasonal strength from retailers.