One-off spike in inflation from GST

GST seems to be the most important issue and problem of the day especially being perceived as set to be triggered by higher than expected inflation.  

It's reported that the goods and services tax (GST), when implemented, may give a one-off lift in inflation of 1% to 1.5% to the Consumer Price Index (CPI), which is projected to reach some 3.5% to 3.8% in 2015.

"Prices of some goods may rise, but this should go down later on. Hopefully, this is a one-time spike, after that it (the inflation rate) will moderate downwards," Ministry of Finance secretary-general Tan Sri Mohd Irwan Serigar Abdullah told reporters on the sidelines of the post-Budget 2014 dialogue, which was jointly organised by the Malaysian Economic Association and the Faculty of Economics and Administration, University of Malaya here yesterday.

Irwan believes that within a year to a-year-and-a-half after the implementation of GST, inflation will taper and resume to its normal rate.

He also reckons that now is the right time to introduce the GST as inflation rate in the country remains low.

For the first eight months of 2013, CPI remained low at 1.7%, said Irwan, adding that it is expected to stay below 2% this year but could hit some 2% to 3% in 2014.

He also cited Canada, Australia and Singapore, which saw profiteers taking advantage of the new tax regime to increase selling prices when the consumption tax was introduced.

However, the impact on the inflation would be minimal if there is strong enforcement by the various ministries and agencies to curb speculative activities, he said.

"GST is to replace the existing sales tax and services tax (SST). By right, price shouldn't increase," he added.

Irwan expects the new tax system to give a net increase of RM3.87 billion to the government's tax revenue, after deducting all incentives.