GST is not the main cause of price hike?

The public in general feel the pinch since the implementation of GST and non-stop complaining about the negative impact especially the hike of the prices.

GST is used by the government of the day to generate tax revenue which is broadly based and applied to everyone whether rich or poor. It’s a simple and efficient form of indirect taxation on valued added goods and services.

GST rollout in Malaysia effective from 1 April 2015. It replaced the current existing 10% sales tax and 6% service tax respectively. It’s the main part of the government’s tax reform programme to enhance the capability, effectiveness and transparency of tax management.

The government is targeted to lower the personal and corporate income tax rates while collecting good revenue for the government. It does not become part of the business operating cost as it’s charged to the end consumer, so it doesn’t increased the financial burden of doing business. The company merely act as the collecting agents on behalf of Malaysia Customs Department.

The 6% value added tax is levied on most transactions in the production process, with exception of blocked Input Tax. Many domestically consumed goods i.e. fresh foods, water, electricity are zero-rated, while some supplies like education and health services are exempted.

However, the public in general feel the pinch from the implementation of GST and began to complain about the negative impact especially the hike of the prices as GST makes necessities such as food, clothing, transport, houses and medical treatment more expensive to the rich or the poor, adversely affecting the equity of the society.

According to the first series of the Auditor General’s report 2016, GST revenue collected from local goods showed an increase of 85%, from RM14 billion in 2015 to RM25.97 billion last year. Meanwhile, GST on imported goods rose 17% from RM12.9 billion to RM15.2 billion.

Based on experiences in other countries, at the implementation year, the inflation rates were 2-3% above the normal rates registered in prior years once the GST was implemented.

As a result, the Ministry of Finance had conducted a price impact studies to find out the effect of GST implementation on 729 types of consumer goods and services from 95 industries. Although the result showed that the Consumer Price Index is expected to decrease by 0.10%, instead GST caused higher inflation in 2015.

According to the projection by the authority, the Consumer Price Index (CPI) might have an on-off lifting the inflation as high as 3.5% to 3.8% in 2015 when GST was implemented.

The price of many of the targeted consumer goods may increase but should go down later on. Theoretically, the Ministry of Finance Secretary-General Tan Sri Mohd Irwan Serigar Abdullah hope that this is a one-time price spike after GST implementation, follow by the moderate downwards of the inflation rate. He believes that within a year to one and a half year after the implementation of GST, inflation will taper and eventually resume to its normal rate.

In addition, the experiences of countries in implementing GST together with pre-GST simulation in Malaysia highlight positively the effect of GST on Consumer Price Index and reduction of prices. But, in fact, it’s the other way round.

The Department of Statistics, according to the data accumulated, it showed that the price increase has occurred every year even before the implementation of the GST. However, it indicated GST is one of the factors causing in price hike.

The uptrend of rising prices for consumer goods occurred since 1980s. In other words, the continuing of rising prices has started to take place 35 years ago long before GST is implemented. CPI report further indicated that there are other contributing factors besides GST which cause price hikes.

Nonetheless, the public are noticeably uneasy in response to the escalating price hike despite the government efforts in keeping the prices of goods and services to remain stable or cheaper but it fails. The price hike keeps on and do not show the signs of decline or stabilization. This worsens the public perception towards GST and aggravated the anger as they are burdened by the rising prices and thus high cost of living.

The public can’t stop complaining about the continuously of price hikes in goods and services, despite the assurance and various efforts of the government in keeping the prices of goods remain the same after GST the prices continue to increase.

Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi said the National Cost of Living Action Council which was chaired by him on two occasions recently found that the rise in prices of goods is not caused by the imposition of the Goods and Services Tax (GST) but due to the action of the middlemen in manipulating the prices of goods had burdened the people who had to bear the rising cost of living.

Although there are some increase in price due to increase production cost, rise in import, due to weaken ringgit, but why the value of ringgit has risen but the price of goods and services do not go down, instead keep going up? This is where the cartel plays a role as middlemen who make a hefty margin.

The Minister in the Prime Minister Department Idris Jala, who in 2010 had warned that Malaysia could go belly-up by as early as 2019, which is ahead the 2020 deadline for the country to become developed nation.

The social media have also reported on this matter, which made the headlines in Nov 26, 2013 that “Desperate for GST, Najib admits it – Malaysia can go bankrupt”.

The Malay Chamber of Commerce Malaysia on Oct 20, 2017 said that the goods and services tax has caused many businesses to close. On the other hand, Prime Minister Datuk Seri Najib Tun Razak said the implementation of GST was necessary as the country risked becoming bankrupt like Greece if it resorted to borrowing.

The introducing GST is because the existing taxation system was not efficient as only 1.34 million workers out of 14 million paid income taxes and GST is the only equitable taxation system. The additional revenue would allow the government to finance future development and improving the weak financial position especially the debt level of close to 55% of GDP.

Although GST being seen as a fair tax system for all. But putting all bets on prices hike may seem unfair to the public that ought to buy the necessities at whatever the prices.

On the other hand, the negative impact of the implementation of GST is the prices of goods and services had raised especially the food in the restaurants and road side stalls.

Undeniably, the price hike has a larger consequence than the obvious pinch in the pockets of consumer, so what is your opinion?