SST reintroduction to lead to tiny price hikes: Economist

KUALA LUMPUR: The reintroduction of the Sales and Services Tax (SST) in September is likely to lead to tiny price increases in the country, lifting the Consumer Price Index (CPI) to 1.7% in 2019 from the projected 1.5% in 2018.
RHB Research Institute Sdn Bhd Chief Asean Economist Peck Boon Soon said businesses would have to build in the cost from SST and slightly increase their prices.
"I am not quite sure how businesses will react to SST, whether they will be more restrained in raising their prices or not.
"But I believe there will be some slight increases as generally, businesses will try to raise their prices every year to cover the cost of doing business, which keeps on rising," he told Bernama.
Finance Minister Lim Guan Eng announced on Monday that under the reinstated SST, the provision of services would be taxed at 6% while the sales of goods would incur a 10% tax – similar to those implemented before the Goods and Services Tax (GST) came into play on April 1, 2015.
He said the SST Bill was expected to be passed in August during the current Parliamentary seating, and would be implemented in September.
Asked if the return of SST would lead to higher inflation in the country, Peck said the impact would only be seen next year, when the CPI was expected to edge up slightly to 1.7% from the 1.5% expected for 2018.
"The headline inflation projections for both 2019 and 2018 would still lower than the 3.8% recorded last year," he said.
He noted that previously, inflation rates in Malaysia were mainly influenced by three factors, namely fuel prices, exchange rates and GST.
"The impact of GST on inflation rates seems to be greater, which by right should not be the case," he said.
However, Peck said the rate of 6% for services and 10% for goods were in line with market expectations, as it had been widely reported that the Pakatan Harapan-led government was looking at the old tax law – the Service Tax Regulations 1975 – after taking over the helm from Barisan Nasional.
Therefore, he did not foresee the mild inflation curbing consumer spending in the country and maintained the 2018 gross domestic product (GDP) growth at 5.2% as forecast by RHB Research in December last year.
Meanwhile, Peck also believed that the government would be able to fulfil its promise of achieving the budget deficit target of 2.8% of GDP for 2018.
"The government has no other option but to fulfil the promises, and the market is expecting it to maintain the target at 2.8%," he said.
Earlier, Lim was reported as saying that he expected the Federal Government to still be able to meet the 2.8% target despite the expected RM17 billion loss in revenue with the shift from GST to SST. — Bernama