KUALA LUMPUR: The Goods and Services Tax (GST) has had minimal impact on inflation since it was introduced in 2015, economists said.
As a result, it is unfair for critics to claim that the consumption tax is the main reason for higher cost of living, they added.
The Asian Research Institute of Banking & Finance director at Universiti Utara Malaysia said the impact of GST on inflation when it was introduced was very small at about 2 per cent.
"How can today we blame GST again for the increase in general prices when the GST rate is still the same at six per cent? Even before GST was implemented, the living cost was already on the rise," said economist Dr Irwan Shah Zainal Abidin.
The consumer price index (CPI) in Malaysia, which measures inflation, increased 1.3 per cent year-on-year in March this year, the lowest inflation rate since July 2016.
The increase is similar to CPI year-on-year increase in January 2013, 27 months before GST was introduced.
On an annual basis, Malaysia has seen an increase of 2.62 per cent on average in Consumer Price Index since GST was introduced, from 2015 until 2017, as compared to 2.31 per cent average increase three years before GST was introduced.
Ersnt & Young India tax partner Vivek Pachisia said in financialexpress report that Malaysia was able to mitigate this risk of inflation spike as price control on account of the GST was administered by the Ministry of Domestic Trade and Consumer Affairs.
“Singapore on the other hand saw a spike in inflation in 1994 when it introduced the GST. That makes it all the more important for administrators to keep tabs on how prices move after imposition of the tax,” he added.
Currently, there are 160 countries in the world that have implemented Value Added Tax or GST.
AmBank Research in its report said the main factors for rising inflation are firmer wages and better disposable spending by households.
This comes as a result of firmer commodities prices and tighter labour market conditions, the research house said.
AmBank Research projected inflation would be around 2-2.5 per cent, which falls within the Bank Negara Malaysia (BNM) range of 2-3 per cent.
Meanwhile, Professor Dr Zakariah Abdul Rashid, executive director of the Malaysian Institute of Economic Research (MIER), said structural reform including tax systems should also consider the broader social sector.
While GST can raise public sector revenue, reduce fiscal deficit and thereby obtain a better rating by rating agencies, the financial position of households also needs to be protected, he added.
"In fact, to put it in a more appropriate balance, household welfare should be given higher priority if we have to balance between the two, as the later is the primary stakeholder," said Zakariah.