Reduce GST rate to curb inflation due to falling ringgit, says PKR

PKR today proposed that Putrajaya lower the rate of the goods and services tax (GST) from 6% to 4% as a temporary measure to control inflation as the ringgit continues to slide to record lows.

The party said that although it was still committed to pushing for GST to be done away with entirely, it was suggesting this measure as a "practical interim solution" to also help the business community.

"We propose to bring down GST to a more sane rate of 4% or lower as a temporary measure to hold back inflation and help out the business community," Wong Chen and Fahmi Ngah, the party's investment and trade bureau chairman and director respectively, said in a joint statement.

"PKR is committed to a complete revision of GST but in light of the current crisis, we are suggesting this as a practical interim solution."

Calling this a "simpler solution" to Datuk Seri Najib Razak's special economic committee, it urged the prime minister to accept the proposal and focus more on the economy and on the people's suffering.

On Tuesday, Najib announced a new committee to ensure Malaysia's economic growth in the face of what he described as "uncertain and challenging times".

"The committee's objective is to ensure Malaysia's growth momentum will continue for some time and be able to generate prosperity in the rather uncertain and challenging times," he had said.

Those in the committee include Najib's brother and CIMB Group chairman Datuk Seri Nazir Razak, former minister in the prime minister's department in charge of economic planning unit Tan Sri Nor Mohamed Yakcop, Khazanah Nasional managing director Tan Sri Azman Mokhtar and economist Tan Sri Andrew Sheng.

Wong Chen and Fahmi said that although they were pleased with Najib's action, they were sceptical about the committee's effectiveness due to the absence of Bank Negara governor Tan Sri Zeti Akhtar Aziz from the high-powered team and the fact, that it would only report to the prime minister.

"We are sceptical about the effectiveness of the committee due to the absence of Zeti and other representatives from Bank Negara. "And that the committee will only report to the prime minister, a leader that has demonstrated time and time again, a lack of political will to reform the economy," they said.

Instead, the PKR duo suggested that the new committee report its weekly findings and recommendations to Parliament. They also said that the currency crisis would have a much deeper impact on the overall economy of the country despite contentions by certain ministers that the weaker ringgit would be good for the export and tourism sectors.

"Our analyses using the government’s own figures have indicated otherwise. "Despite the weak ringgit, our export numbers have not improved significantly.

“For the first half of the year, total exports are only RM368 billion, which is RM12 billion lower than the same period last year (RM380 billion). “This is despite an 11% weaker ringgit (against the US dollar) in this period compared with the same time last year."

They also said that the number of tourists for the first quarter of this year was lower than the same period last year although the ringgit was 10% weaker in 2015 compared with 2014. "The tourists in the first quarter of this year total at 6.48 million is also almost similar to the number in the first quarter of 2013, at 6.45 million despite ringgit in 2015 being 17% lower than 2013.”

They said that their biggest concern was the rising inflation from the escalating prices of imports, which would translate into higher cost of living for Malaysians, who were already burdened with GST.

"We also wish to caution the economic committee to be careful not to raise interest rates as an easy way to stabilise the impending inflation because it will diminish our much needed domestic economic activities."

The ringgit has hit its lowest point in value against the US dollar in 17 years, as Bank Negara digs deep into its international reserves to shore up the currency.

Reserves were at US$94.5 billion as of August 14.