GST on the right path – Johan James

Is it necessary to regard GST as a threat rather than welcoming it? Some politicians are merely using GST as their political-rhetoric ammunition to ridicule the government’s feasible option to reduce budget deficit and also the overdependence on oil and gas revenue.

GST implementation has been lauded by many of our economists who care more about the economic well-being rather than taking political advantages.

GST implementation is a timely move by the country’s administration to reduce the current budget deficit from 3.5% to 3.0%.

Of course, this move was not taken before the General Election fearing it would reflect badly on the results of the tough ever election. But when a country is already in an economic turmoil, a fine systematic taxing system like GST comes in handy for the administrators.

And it is also note-worthy that Malaysia is not the only country to do this. It has been repeatedly explained that some of the goods which are subjected to 10% of Sales Service Tax (SST) would be taxable for only 6% after the GST.
 

A long list of goods, especially the food items were generously exempted from the GST. In the current situation, GST expected to cushion the hard hit government GDP due to the unexpected decline in oil price An estimated 10% of the government revenue would be sourced from GST. -

However, with the global oil price deteriorating, easing the budget deficit would become an uphill battle for the administrators.

In regard to this, government has to tighten its belt by reducing the mega-development projects and concentrate more on few projects which are deemed as necessary and could generate immediate revenues.

Apart from that, some of our economic wizards are also advising our government to invest more on quality education in order to produce productive individuals who could turn over the economic vulnerability of our country in the long run.

This is indeed an important aspect to be considered as the economic prudence of a country cannot be established overnight.

Many of us still not aware that the tapering of oil price in global market is a blessing in disguise especially for the middle and low income group of people.

An economist from the Oxford Economics had argued that lower oil price tend to "redistribute income to those who have higher propensity to consume" (generally the lower income groups).

This is well assured in Malaysia as the oil price level and the mechanism undertaken by government to decide the price periodically, in line with the global-market price.

Even though there are fear and greed factors looming among the retailers, buyers won’t be affected much.

In actual fact, the plummeted oil price has increased the disposable income of the general public.

Therefore, the price hike caused by the GST, expected to be overshadowed by this. This situation expected to remain for quite sometimes until some major shock occurs in the oil and gas industry, globally.

However, a major shock might not be possible in near future as the US have increased their shale oil productions in multiple folds, surpassing the OPEC countries’ oil productions.

The advanced technology and the minimal cost in oil production have boosted the US production and dampened the demand for oil in the global market.

While the declining oil price is a boon for the laymen, it could stall the manufacturing companies and oil and gas industries. Not only that, but it is also had depreciated greatly the ringgit value, which is RM3.57 per USD now.

Although this is a setback for the manufacturers, they could increase their exportations to offset this, as the international trade denominated in USD.

This is possible as the USD had appreciated recently and the booming economy in US would fairly stimulate their import. Therefore our local manufacturers, at all costs, must strive to improve the quality of their product besides increasing the production.

The China’s factor also has to be taken seriously as the republic is one of our major trade-partner. Malaysia is foreseeing a faster recovery in the economic growth of China to boost their import. Adding to that, more locals must be employed instead of depending on excessive foreign labours in the manufacturing sectors. – January 19, 2015.