KUALA LUMPUR: The sooner the goods and services tax (GST) is implemented, the better it will be, said Kenanga Investment Bank Bhd, as the consumption tax will help the government collect more revenue and address the country’s budget deficit faster.
Its senior vice-president and economist Wan Suhaimie Wan Mohd Saidie is hoping for a full implementation of the GST by the middle of next year or latest by Jan 1, 2015.
“I am not saying that GST is 100% good, but if it’s implemented on July 1, 2014, this would help reduce the budget deficit by about 0.2 to 0.4 percentage points in 2014,” he said at K&N Kenanga Holdings Bhd’s fourth quarter market outlook media briefing here yesterday.
“Economically, it’s better to implement GST in the middle of next year, but the window would be tight and it’s not very business conducive as small companies need more time to comply (with the GST). As such, government might take that into consideration and delay the implementation,” he added.
He also believes that Fitch Ratings would likely revise Malaysia’s outlook from negative to positive within three to six months after implementation of the GST.
Wan Suhaimie sees the GST being introduced at a minimum level of 4% to a maximum of 7%, although “the government is likely to start at 5%”.
“An initial GST rate of 5% would boost the fiscal revenue by some RM3 billion to RM4 billion for the whole of 2014, partially offsetting the loss in sales and services tax (SST) estimated at about RM4 billion to RM5 billion in a six-month period,” he said.
Although the implementation of the GST may weigh on gross domestic product (GDP) growth, Kenanga is projecting the fiscal deficit for 2014 to reduce to 3.4% of GDP from 4% this year. “The impact would be more pronounced in 2015 as the fiscal deficit is forecast to narrow further to 3.1%,” he added.
And should the government delay the implementation of the GST to Jan 1, 2015, the fiscal deficit would still narrow to 3.7% of GDP in 2014 due to savings from subsidy cuts.
Wan Suhaimie is maintaining his GDP forecast of 5% for this year, driven by exports recovery and domestic demand.
He said GDP growth in the second half of the year is projected at 5.7%, compared with 4.2% recorded in the first half.
Kenanga is also predicting a GDP growth of 5% to 5.5% for 2014 and 6.1% for 2015.
“Should the GST is implemented on July 1, 2014, we might see a lower side of 5% GDP growth in 2014.
“And if the GST is implemented on Jan 1, 2015, GDP growth in 2015 will be hurt by 0.3 to 0.5 percentage points,” he added.
Meanwhile, Wan Suhaimie expects inflation rate to exceed 3% in 2014 from a 2.1% forecast for this year, driven by higher prices of petrol and transportation cost.