Economist : SST can't bring down cost of living in the long term

An economist pointed out that the implementation of Sales and Services Tax (SST) could not help to bring down the cost of living in the long term as what Pakatan Harapan had believed.

Speaking at the Federal Territories PKR convention today, the Institute for Democracy and Economic Affairs (Ideas) CEO Ali Salman said this is because many factors led to the increase of the cost of living besides taxation.

Ali, who was invited by PKR to evaluate Pakatan Harapan’s major promises, said he favoured the Goods and Services Tax (GST) over SST.

"One of the key promises was the cost of living (which Harapan) linked with the removal of GST (and said) the cost of living would come down.

"As an economist and a think-tank member, I cautioned against that. To be honest, this (bringing down the cost of living) may not happen," he said, adding that Ideas, however, respected and supported the Harapan’s promises.

"We saw an initial drop in prices when the GST was removed but now, the prices are back to the pre-election (GE14) days. There was a temporary relief for consumers when this was done, but it did not last in the long term to reduce the day to day expenditures," he said.

The Consumer Price Index (CPI) had reportedly increased 1.1 percent in Sept 2019 to 121.8 as against 120.5 in the same month of the preceding year.

The CPI stood at 120.9 in December 2017.

Ali said factors which contributed to the increase in prices included the way the economy is structured and the structure of imports and exports.

He said the cost of living will increase when an economy is moving from lower-middle to upper-middle status.

"Whenever a country moves up, you should expect the prices to go up also," he said.

The economist believes the GST is better taxation as it improves fiscal discipline and documentation of the economy.

As such, he urged the government to reform the current taxation.

"We actually recommended some of the complicated parts of GST in refund can be addressed by a reformed SST (RSST).

"So we talked about an RSST, in which features of both the GST and SST can be combined.

"Generally, we favour the idea of GST over SST, but reform is possible and the SST can be improved," he said.

Earlier this month, Prime Minister Dr Mahathir Mohamad said the government would study the possibility of re-introducing GST if that is what the rakyat wanted. - Mkini