KUALA LUMPUR: The Goods and Services Tax (GST) will be a step in the right direction to tackle the country’s high deficit levels, according to Bank Islam Malaysia Bhd.
Given rising inflation, Bank Islam chief economist Firdaos Rosli said there was “no right timing” when it came to implementing the consumption-based tax system.
“We need the GST. Despite its flaws, it is a much more robust taxation system than the sales and service tax.
“So, the idea is not to have the perfect system, but to adopt, adapt and improve on the existing taxation system. But whether the timing is right, in my view, the timing is always not right, as there will always need to be a mindset change to what’s coming,” he said at a media briefing yesterday.
The Barisan Nasional-led government had introduced the GST in April 2015, only to be abolished by the Pakatan Harapan administration after it rose to power in 2018. The revised budget will be tabled on Feb 24.
Firdaos said Malaysia’s fiscal deficit narrowed to 3.9% of gross domestic product (GDP) in the first nine months of 2022, cushioned by better-than-expected economic performance in the third quarter of last year.
“Going into 2023, as Malaysia’s economic fundamentals are likely to remain solid, we anticipate its fiscal deficit to improve slightly to between 4% and 4.5% of total GDP in 2023,” he said.
Commenting on the country’s economic performance, Firdaos expects the country’s GDP growth to come in at 8.1%, exceeding the official projection range of between 6.5% and 7% due to stronger-than-expected third quarter performance last year.
However, amid the sustained headwinds this year, he expects the GDP growth to moderate to 4.5%, one of the steepest compared with other regional economies.
Firdaos, however, said Bank Islam’s GDP projection did not take into account the reopening of China’s borders.
“Our services sector is still very much anaemic. With the reopening of China, we expect our services sector to experience an uptick eventually.
“In 2019, the number of inbound tourists from China was around two million. Now it’s around 150,000, so there’s a lot of room to grow.”
In spite of macroeconomic headwinds, Firdaos said the ringgit would fare better in 2023.
“We think the dollar could ease as the US Federal Reserve is expected to be less aggressive in its rate hikes, allowing the ringgit to appreciate gradually.”
According to Bank Islam, the ringgit may hit RM4.375 to the US dollar by the year-end.
Firdaos said Bank Negara would likely raise the overnight policy rate (OPR) by 25 basis points (bps) to 3% at its monetary policy committee meeting today.
“In terms of the OPR, we expect two consecutive hikes, starting from this month and one more in March.”
Firdaos said keeping the OPR too low for too long could lead to macroeconomic imbalance amid excessive risk-taking.
He cautioned slower international trade might be inevitable this year.
“Challenges stemming from the external front could lead to slower export growth and subsequently, Malaysia’s economic outlook in 2023.”
Nevertheless, he pointed out that Malaysia would benefit from the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which would improve the country’s foreign trade.
Under the CPTPP, Firdaos said Malaysia would gain greater access to three markets, namely Canada, Mexico and Peru.
“For 2023, all multilateral development banks are expecting the global slowdown to affect North America, namely Canada and Mexico, but not Peru.
“So perhaps one of the things Malaysia can do through the ratification of the CPTPP is to improve on exports to Peru,” he said.
