GST to be effectively scrapped from June 1: Malaysia

GST to be effectively scrapped from June 1: Malaysia

GST to be effectively scrapped from June 1: Malaysia

Following rumours of GST being rescinded, Malaysia's Ministry of Finance have just announced that all GST rates would be reduced from the current 6% down to 0% effective June 1 this year.

Prime Minister Mahathir Mohamad, who pulled off a surprise win in last week's elections, said "the directive has been issued so that we do not collect anymore GST".

As such, the reduction in prices may not be the full six percent, at least for existing inventory in which GST has already been paid along the chain by the manufacturer and distributor - unless these companies can reclaim from the government the tax they have paid.

Some analysts fear that the decision would worsen Malaysia's fiscal position, including blowing up the budget deficit, now at 3.1% of GDP.

With the abolishment of GST effectively brought forward, these companies will likely have to do these adjustments in two steps - refunding buyers who booked before June, then maintaining the pre-SST prices from then on out.

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"We argue that the repealing of the GST is not as negative as many analysts have feared as it is offset by the re-introduction of the SST and the rise of oil prices", argues Trinh D. Nguyen, Senior Economist, Emerging Asia, at French bank Natixis.

Mahathir had also promised to reintroduce fuel subsidies, which along with the GST removal, could widen Malaysia's fiscal deficit.

Some are now wondering if this affects the prices of daily-use items-can Malaysians expect to see the prices of their nasi lemak and teh tarik drop?

The consumption tax was introduced in April 1, 2015 by defeated Datuk Seri Najib Razak's administration.

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