Treasury: One-off inflation spike from GST brief, will moderate by 2017

BY ZURAIRI AR

OCTOBER 28, 2013

Secretary-General of Treasury, Tan Sri Dr Mohd Irwan Siregar Abdullah,
also predicted that the inflation rate would increase to between 3
and 3.5 per cent from the current rate of around 2 per cent. — Picture by Choo Choy May

KUALA LUMPUR, Oct 28 — The Ministry of Finance assured the public today that any inflation resulting from the implementation of the recently announced goods and services tax (GST) will only be one-off, before moderating by 2017.

Secretary-General of Treasury, Tan Sri Dr Mohd Irwan Siregar Abdullah, also predicted that the inflation rate would increase to between 3 and 3.5 per cent from the current rate of around 2 per cent.

“In our studies, it shows most of countries — Canada, Singapore, Australia — one time spike. Because of speculators. One year or one and a half year then it will go down,” Irwan said in a post-Budget 2014 dialogue here.

“If the ministry and agencies take the various steps, do enforcement, no people taking advantage ... then I think (there will be) minimal impact on inflation.”

Irwan also explained that ideally, there would not be any increase in goods prices because the planned GST is meant to replace the existing sales and services tax.

However, he warned that retailers and wholesalers might take advantage of the situation by increasing their prices, but blaming it on the GST instead.

On Friday, Prime Minister Datuk Seri Najib Razak announced that Malaysia would finally implement the long-delayed Goods and Services Tax (GST) at 6 per cent beginning April 2015 as Putrajaya seeks to tackle its chronic deficit.

The replacement to the current sales and services tax comes amid public concerns that it will increase the cost of living through a hike in the inflation rate, especially after a fuel subsidy cut in September.

To offset the new tax, Najib also announced that personal income tax would be reduced by 1 to 3 percentage points, depending on the income bracket.

A one-off payment of RM300 under the 1Malaysia People’s Aid (BR1M) will also be made following the implementation scheduled for April 1, 2015.

The GST is a consumption tax, meaning all Malaysians will be taxed according to their level of spending, regardless of income. This differs from income tax that is only applicable after a certain salary level is exceeded.

Malaysia’s proposed GST rate of 6 per cent is the lowest in the region, whereas most countries implement a 10 per cent value added tax (VAT).

Najib announced that essential food items would be exempted from the tax, in addition to tap water and the first 200 units of electricity. Government services and public transport will also be exempted.

The tax was first announced during Budget 2005 and was originally scheduled to be implemented in 2007 before it was deferred.

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