News & Articles How will GST affect prices, cost of living?
How will GST affect prices, cost of living?
8 Dec 2014
THE introduction of any new tax is bound to cause some confusion, and the introduction of Malaysia's GST is no exception. While consumers will have many questions about the new tax, their greatest concern is usually "how will the GST affect prices, and my cost of living?"
Contrary to some views that have been circulating, the GST doesn't automatically increase the price of everything by six per cent.
The amount of price change in goods and services will depend on a range of factors. For example, the GST will replace Malaysia's existing sales and services tax — it will not add up to the sales and services tax.
As announced, the government has signalled that it is focused on minimising GST impact by proposing a low standard rate of six per cent and the standard GST rate will not apply to all goods and services.
Over 450 items will be zero-rated, such as basic food, and some other goods and services, such as financial services, services provided by residential property developers, and public transport.
Educational and healthcare organisations will also be GST-exempt. The sale or rental of a residential property will be GST-exempt.
Overall, this means that there will be some GST impact on the cost of these products, but it will be different than for standard rated goods and services.
It is reasonable to expect that the cost of some services will increase as a result of the GST.
However, others may not change much at all, as the proposed six per cent GST rate is the same as the general six per cent services tax.
Malaysia's Deputy Finance Minister noted some time ago that in countries with GST, prices of goods will generally go up by 1.8 to two per cent in the first year of implementation.
Actual price changes — if any — will, of course, differ depending on the goods or services.
It is also important to note that regardless of the GST, there are other market forces at work — for example consumer behaviour, the extent to which sellers can influence prices, and how the government will administer proposed anti-profiteering legislation.
The real impact of the GST on consumers will be clearer next month when the Domestic Trade, Co-operatives and Consumerism Ministry releases the much-anticipated shopper's guide.
In the meantime, the accompanying list provides an early insight as to what to expect.
The government has described the importance of GST in ensuring a strong and sustainable fiscal position that will support long-term economic growth.
The GST is also anticipated to expand the economy by three per cent and reduce the "hidden economy", or incidence of tax evasion, by 15 per cent. It may also bolster export growth by up to 0.5 per cent. This will be good for business and jobs.
Of the 944 goods and services in the consumer price index basket of goods, the prices of 532 items, or 56 per cent, are expected to be reduced by up to 4.1 per cent.
These include:
q Medicines
q Electrical appliances such as refrigerators and washing machines
q Textile products
q Plastic products such as pails and plates
q Shoes and slippers
q Household furniture
q Baby diapers
q Soap
q Meat
q Chicken eggs
q Cooking oil
q Seafood
q Rice, and
q Vegetables.
Some 354 goods and services may experience some increase in price, but less than 5.8 per cent.*
Contrary to some views that have been circulating, the GST doesn't automatically increase the price of everything by six per cent.
The amount of price change in goods and services will depend on a range of factors. For example, the GST will replace Malaysia's existing sales and services tax — it will not add up to the sales and services tax.
As announced, the government has signalled that it is focused on minimising GST impact by proposing a low standard rate of six per cent and the standard GST rate will not apply to all goods and services.
Over 450 items will be zero-rated, such as basic food, and some other goods and services, such as financial services, services provided by residential property developers, and public transport.
Educational and healthcare organisations will also be GST-exempt. The sale or rental of a residential property will be GST-exempt.
Overall, this means that there will be some GST impact on the cost of these products, but it will be different than for standard rated goods and services.
It is reasonable to expect that the cost of some services will increase as a result of the GST.
However, others may not change much at all, as the proposed six per cent GST rate is the same as the general six per cent services tax.
Malaysia's Deputy Finance Minister noted some time ago that in countries with GST, prices of goods will generally go up by 1.8 to two per cent in the first year of implementation.
Actual price changes — if any — will, of course, differ depending on the goods or services.
It is also important to note that regardless of the GST, there are other market forces at work — for example consumer behaviour, the extent to which sellers can influence prices, and how the government will administer proposed anti-profiteering legislation.
The real impact of the GST on consumers will be clearer next month when the Domestic Trade, Co-operatives and Consumerism Ministry releases the much-anticipated shopper's guide.
In the meantime, the accompanying list provides an early insight as to what to expect.
The government has described the importance of GST in ensuring a strong and sustainable fiscal position that will support long-term economic growth.
The GST is also anticipated to expand the economy by three per cent and reduce the "hidden economy", or incidence of tax evasion, by 15 per cent. It may also bolster export growth by up to 0.5 per cent. This will be good for business and jobs.
Of the 944 goods and services in the consumer price index basket of goods, the prices of 532 items, or 56 per cent, are expected to be reduced by up to 4.1 per cent.
These include:
q Medicines
q Electrical appliances such as refrigerators and washing machines
q Textile products
q Plastic products such as pails and plates
q Shoes and slippers
q Household furniture
q Baby diapers
q Soap
q Meat
q Chicken eggs
q Cooking oil
q Seafood
q Rice, and
q Vegetables.
Some 354 goods and services may experience some increase in price, but less than 5.8 per cent.*
Source: New Straits Times