PETALING JAYA: The narrower tax coverage for services under the sales and service tax (SST) come Sept 1 is set to be a double-edged sword, as it will boost consumer demand while at the same time lowering government revenue.
Effective next month, the scope of the proposed tax model will be implemented based on the Service Tax Act 1975, said Finance Minister Lim Guan Eng at the second reading of the proposed Service Tax Bill 2018 in Parliament yesterday.
This means that only 43.5% of services will be subject to the SST, compared with 64.8% of services previously under the goods and services tax (GST).
Sunway University Business School economics professor Yeah Kim Leng said a smaller coverage means that more businesses will be subjected to less cost pressures, while consumers will enjoy more tax-free services.
“Overall, there will be a lower tax burden which translates into higher disposal income for households. It is positive for domestic demand but negative for fiscal strength due to lower government revenue,” he told StarBiz. Socio-Economic Research Centre executive director Lee Heng Guie concurred that the narrower tax bracket would mean the burden on consumers within the lower and middle-income groups would be reduced.
“However, the degree of whether it would be better or worse for the consumer, overall, would depend on the cost impact of the businesses along the supply chain before it reaches the consumer.”
Alliance Bank Malaysia Bhd chief economist Manokaran Mottain concurred: “Even though the revenue for the government would be lesser, there would be less burden on the consumer, as you are putting more money in their pockets.”
He noted that under the consumer price index basket of goods and services under the GST, 60% of the goods were taxed, compared with just 38% under the SST.
According to Lim, the number of goods and services not subjected to the SST was 10 times more, and RM17bil which is expected to be collected would be returned by the federal government to the people this year through the change in the tax system.
He said RM44bil in revenue was collected through the GST compared with the RM21bil estimated from the SST.
The lower revenue collection means that the government would need to be more vigilant with its spending and budget deficit level, said Lee.
“The government will need to realign its budget spending by incorporating more revenue optimisation strategies and plugging any leakages.”
Meanwhile, Lim said the government would be flexible and has proposed for the SST to be imposed on restaurants with an annual turnover of RM1mil, compared with RM500,000 previously.
Malaysian Association for Shopping and High-Rise Complex Management past president Richard Chan said this was a good move and helped provide more disposable income for smaller business operators.
“It also means that the bigger players will now have to be more transparent,” he said.
MyEG Services Bhd, which has been working on a tax system for the new government to help reduce leakages when the SST is reintroduced next month, saw its shares close four sen up to RM1.23 yesterday.