Investors view GST as boost to economy, says analyst

Goods and Services Tax, as a broad-base tax, will produce higher revenue compared to other taxes, says an economist. (Bernama pic)

PETALING JAYA: A reintroduction of the goods and services tax would give foreign investors confidence that Malaysia’s economy would be able to bounce back faster post-Covid-19, says an economist.

Firdaos Rosli, chief economist of MARC Ratings Bhd, said investor confidence is driven by high growth rates and revenues, which is more possible with the GST which, as a broad-base tax, will produce higher revenue compared to other taxes.

“With more revenue, Malaysia can then either take on more debt for faster growth or pay  existing debt obligations, improving its credit rating,” he told FMT.

Firdaos added that Malaysia’s growth potential was one reason the country has not been downgraded by credit rating agencies such as Moody’s and S&P.

However, pressure on Malaysia’s credit ratings will increase over time. Use of the GST could ease the pressue by raising Malaysia’s revenue-to-GDP ratio.

The economist was commenting on Umno Supreme Council member Isham Jalil’s remarks that the GST could instil confidence among foreign investors as it would assure them that Malaysia would not introduce other taxes to increase its revenue.

Firdaos said the country needs to have conversations on what a “GST 2.0” would look like and how it would be implemented.

“The economics of GST is clear cut, but the politics is not, because you need to get the stakeholders’ buy-in first,” he said.

The government should be prepared to spend more than it would collect from the GST to better ensure buy-in for the tax.

Carmelo Ferlito of the Center for Market Education said investors in non-manufacturing sectors would prefer the GST as they cannot claim input costs under the sales and services tax (SST).

This meant that a non-manufacturing company, like a trading business, has to pay SST on its purchases but could not claim the input tax as it would be able to with the GST.

So he said, the trading company would be left with no choice but to absorb the tax or push it to customers in the form of higher prices, something that was not ideal.

Federation of Malaysian Business Associations vice-chairman Raymond Woo said the GST should not be seen as a “magic pill” for the government.

Woo said a foreign investor would want to see that “business could go on as usual regardless of any change in government”.

“Foreign investors would want to see continuity in how things are run, they want certainty,” he said.

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