Economists knock business plea for SST, EPF cuts

An economist says there is no need for exceptional measures to stimulate the economy because of the coronavirus outbreak.

PETALING JAYA: Two economists have urged the government against temporarily reducing the sales and services tax and employees’ contribution to the Employees Provident Fund as proposed by the country’s largest manufacturers group.

Calvin Cheng of the Institute of Strategic and International Studies (Isis) and Carmelo Ferlito of the Institute for Democracy and Economic Affairs (IDEAS) said such measures were problematic.

The Federation of Malaysian Manufacturers recently proposed that SST be reduced by 2% for 12 months and employees’ EPF contribution by 3% to boost business conditions and domestic consumption as a way to minimise the impact of the coronavirus outbreak on the economy.

Cheng said while reducing consumption tax rates will boost consumer spending, it was not the best way to do so, as it had political and administrative drawbacks.

The SST, he said, made up 10% of Putrajaya’s tax revenue and he believes Putrajaya would get more value by directly giving people more money to spend, be it in the form of e-wallet cash or increased Bantuan Sara Hidup (BSH) cash aid.

“You can be more targeted compared to giving tax cuts to wealthier, big spenders,” he said, adding research has indicated that transfers to lower-income households have greater impact compared to transfers to higher-income households.

“Plus raising back the SST by 2% later will be politically difficult,” said Cheng.

In the longer-run, he added strengthening and improving initiatives which supported the people when economic conditions worsen, such as unemployment insurance and BSH would be beneficial as they are targeted at the most vulnerable households.

“Other longer-run productivity-enhancing policies like increasing infrastructure investment and providing investment incentives to private sector firms can also be useful.”

As for businesses, stimulus through tax cuts were not very effective because the impact was not big and it takes a long time for the tax cuts to take effect.

“Businesses are helped indirectly by higher consumer demand which helps everyone, he said.

Ferlito also said it will take time for the effects from a reduced SST rate or EPF contributions to be felt, if at all it has a real impact.

“The coronavirus is a medical emergency, by the time the FMM’s proposed measures are implemented, we may already be out of the situation. If people don’t panic, the virus would affect few industries such as aviation and tourism.”

He said it was important to limit the fallout to the flights and tourists from China and avoid discouraging other tourists to keep coming here.

The best thing the government could do, he said, was to show that the healthcare system is able to promptly face the situation.

“If resources had to be spent, I would direct it to the healthcare system to send a signal that Malaysia can handle the outbreak and that business can go on as usual.

“Business is strongly determined by confidence and sentiment. I really think at this moment there is no need for exceptional measures.” - FMT