KUALA LUMPUR: The planned reintroduction of Sales and Services Tax in place of the Goods and Services Tax (GST) will at most collect about RM20 billion to RM25 billion, which means it is still short of about RM20 billion, analysts said.
But the new Pakatan Harapan government can meet the shortfall by going full force to streamline expenditure and trim unnecessary discretionary spending as well as review and prioritise major projects, they said.
It can also revamp and restructure revenue generating non-financial public enterprises such as Petronas and its subsidiaries and managing debt or raise funds.
Analysts at Kenanga Research said the government needed to plug a big hole in the fiscal budget amounting to at least RM42 billion once it abolished the GST.
They felt while it would be a policy challenge to come up with a solution to replace GST, the move would probably boost public sentiment especially among the lower and middle income earners.
Hence, they expected it to give a booster to private consumption provided the alternative would be implemented smoothly and the rates are reasonably lower than the current GST rate of six per cent.
“Since private consumption contribute about 54 per cent of gross domestic product (GDP), it would bring about a significant impact on consumption growth and may partly help to mitigate a shortfall in investments and public spending,” said Kenanga Research, which kept its GDP growth forecast of 5.5 per cent this year.
MIDF Research said the rolled back of key polices such as GST abolishment, besides managed fuel price and targeted subsidy, are seen as sentiment booster for the consumers.
The proposed policy stance would help to lift consumers’ disposable income and indirectly spur domestic consumption, the firm added.
“At this juncture, the directional (upward) implication on consumers is given but the impact on government’s fiscal position is unclear due to lack of details of implementation,” MIDF Research said.