GST can reduce household debt, says economist

 

A multi-layered implementation of the GST will ease the burden on lower-income groups, says economist Carmelo Ferlito. (Bernama pic)

PETALING JAYA: Household debt can be reduced with a well-implemented goods and services tax (GST), said an economist.

Carmelo Ferlito of the Center for Market Education said he was in favour of reintroducing the GST as part of a more holistic tax reform to address high household debt.

“GST is a consumption tax. As such, it tends to discourage consumption, and nudges in favour of saving,” he said

He was commenting on a recent remark by finance minister Tengku Zafrul Aziz that there was a possibility the GST might be reinstated because of weaknesses in the existing sales and services tax (SST) system.

Carmelo Ferlito.

Ferlito said if consumers had to pay taxes on top of the base price for goods and services, they would be more mindful of their spending habits.

“This is important given that Malaysia is the country with the highest household debt-to-gross domestic product (GDP) ratio in Asia,” he said.

The debt-to-GDP ratio is used to determine a country’s economic health. The higher the ratio, the greater the debt of a country compared to its total economic output.

Malaysia’s household debt-to-GDP stands at 89.6%.

To lessen the burden on lower-income groups, Ferlito proposed a multi-layered implementation of the GST.

“For example, 0% for basic goods such as rice, 3% for normal goods and 6% for high-end goods,” he said, adding that lower-income groups could better manage their finances if they were not required to pay tax for basic daily commodities.

Barjoyai Bardai.

Tengku Zafrul had noted that many leakages occurred after the SST system was introduced in 2018, making it difficult for the government to track those who tried to evade taxes.

Commenting on the same issue, Universiti Tun Abdul Razak’s Barjoyai Bardai said, in comparison, the GST would allow for better monitoring and prevention of tax evasion.

“It’s proven that when we had the GST, we had a good record of the private sector and the whole retail sector’s activity.

“We could monitor how those sectors were performing as well as determine if taxes were being paid,” he said.

He said that if the GST was not reinstated, the SST should be restructured in phases.

There have been calls from certain economists and politicians to reintroduce the GST amid concerns that Malaysia’s debt-to-GDP ratio will increase, with no stable inflows and high outflows of government expenditure.

A 6% GST had been introduced in 2015 but was abolished by the Pakatan Harapan administration and replaced with the current SST system in 2018.- FMT