POLITICISING TAX HIKE AFFECTS CONSUMER, INVESTOR CONFIDENCE, SAYS ECONOMIST

PETALING JAYA, March 6 (Bernama) -- Politicising the 2 per cent service tax increase on selected sectors will be detrimental to consumer and investor confidence, warned an economist.  

While raising taxes was unpopular globally, Dr Yeah Kim Leng of Sunway University said it was crucial for everyone to have a better understanding of the need for higher revenue mobilisation.

This, he said, would strengthen public finances and enable the government to improve people's livelihood as well as social wellbeing, while sustaining economic growth. 

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“Hence, the issue should not be politicised to the detriment of investor confidence, and ultimately the country’s growth prospects,” he said in a statement.

The service tax rate on certain sectors was raised from 6 per cent to 8 per cent from March 1, but does not apply to food and beverages, telecommunication and parking services.

Yeah said the government needed to raise its revenue to reduce its annual deficits and to increase spending to improve the quality of health, education, housing and essential services.

“The current level of taxation in Malaysia is considered low compared with its peers as well as relative to historical trends. To reduce the disproportionate negative impact on low-income groups, selected essential services such as food and beverage, telecommunications and logistics are not affected.

“While the tax rate increase will affect all consumers regardless of income levels, the less affluent segments can access various social assistance programmes that include fund transfers to cope with living cost hikes." 

Yeah said public expenditure was raised substantially to counter the Covid-19 pandemic and ensuing economic downturn, thereby leaving a substantial income-expenditure gap that was financed through increased borrowings.

With the high fiscal deficits and debt levels unsustainable in the long term, he said the estimated RM3 billion to be raised from the service tax hike would help Putrajaya achieve a lower deficit this year compared with 5 per cent of the gross domestic product (GDP) in 2023.

On possible profiteering, Yeah said it was a cause for concern if traders and businesses capitalised on the increase to hike prices and increased profit margins.

This would cause inflation to spike, especially if cost-pass-through expenses were way above the 2 per cent rise levied on the cost of services and other inputs, he said.

Cost-pass-through expenses are those that a third party charges the company which are then passed on directly to the clients.

“While the overall inflation is expected to edge up marginally by 0.1 to 0.2 per cent, profiteering, together with uncontrolled inflation expectations, may push inflation above the country’s long-term trend of 2-2.5 per cent.

“Keeping inflation low and stable will be beneficial for everyone as purchasing power remains intact while growth continues and increases in wages and income outpace inflation,” he said. 
-- BERNAMA