An unpopular new consumption tax has handed fresh ammunition to critics of Malaysia’s embattled prime minister, with angry consumers complaining it has sent some prices surging, and economists warning it could harm growth.
The government on April 1 introduced the 6 percent Goods and Services Tax (GST), which taxes transactions throughout the business supply chain and replaces earlier sales and service taxes on end-consumers that ranged from 6 to 10 percent.
The government had said the more streamlined tax regime would lead to lower prices for many key items and boost government revenue in Southeast Asia’s third-largest economy.
Photo: AFP
Experts agree Malaysia’s biggest tax reform in decades is necessary — fewer than 3 million of the country’s 30 million people pay income tax, and high government debt has economists worried.
However, implementation has been marked by mass confusion over how the tax works, its array of exemptions and contradictory government statements, with many businesses hiking prices amid the uncertainty.
The issue sparked a May Day protest by thousands of opponents and has provided fresh fodder for ruling-party forces seeking Malaysian Prime Minister Najib Razak’s ouster over allegations of corruption and mismanagement.
“We are victims of a mismanaged economy. [The GST] hurts the poor and the middle-class like me,” Kuala Lumpur pre-school teacher Siti Nora Manaf, 62, said.
Like many Malaysian consumers, she already faced rising costs, with the ringgit currency at its weakest in years due to concerns over the impact of soft world oil prices. Malaysia is heavily dependent on energy exports.
Siti Nora said the price of a bag of rice — supposedly exempt from the GST — has jumped 40 percent since April 1 amid the confusion. She has begun growing vegetables in the small garden at her home, while slashing other living costs.
Malaysian consumers shoulder some of Asia’s highest levels of personal debt, increasing public sensitivity to price shocks.
“Everyone’s wallet is being hit. Salaries are not going up, and going forward consumers will face a hard time,” Federation of Malaysian Consumers Associations head Paul Selvaraj said.
Bank of America Merrill Lynch economist Chua Hak Bin (蔡學敏) said the GST will crimp the domestic spending that Malaysia’s economy increasingly relies on as export markets have softened.
“There will be a pullback in consumer spending and it could last until September due to waning consumer sentiment,” Chua said.
However, that scrapping the GST would be a “disaster” that would shatter investor confidence, he said.
Economists remain guardedly optimistic on the financial outlook, and foreign investment remains solid. However, worried comparisons are being made with Japan, which raised its consumption tax last year, a move blamed for stifling consumer spending and triggering a recession.
Anger over the tax comes as Najib is struggling to fend off a persistent campaign for his ouster by influential former Malaysian prime minister Mahathir Mohamad.
Najib was weakened by 2013 elections in which his coalition nearly lost power, and his reputation has been hammered this year by a drip-feed of damaging allegations of fraud at a debt-ridden state investment firm he oversees. He has denied wrongdoing and ordered auditors to examine 1Malaysia Development Berhad’s books.
Reports of his family’s lavish lifestyle also have stoked public anger.
Najib, who is also finance minister, has been under pressure to get Malaysia’s financial house in order amid warnings of a possible sovereign credit downgrade over rising government debt.
The government says an estimated US$6 billion in additional annual revenue will be raised by the GST, which exempts politically sensitive staples such as rice, sugar and cooking oil, but opponents say consumers are being stuck with the bill for a system in which huge sums are allegedly wasted by the government or go missing each year, and have demanded administrative reforms first.
“There is a genuine need for more money in government coffers, but public confidence in how it will be spent is low,” Malaysia political analyst Bridget Welsh wrote in an essay last week.
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