The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
We have been talking about GST for a while now and with the implementation set to be in 2015, a lot of Malaysians are starting to worry about the impact that it has upon the country.
While the Goods and Service Tax (GST) has a lot of positive wealth impact that was lauded by a lot of experts in the economy, common folks in Malaysia still worry about the negative impacts on the livelihood and affordability of the Rakyat.
Before we move to talk about the pros and cons of GST,
what is GST in the first place?
GST is a consumption tax that is imposed on goods and services at every stage of the supply chain, which typically begins at the manufacturing stage and ends at the retail stage.
GST is based on the “valued-added” concept to avoid duplication in tax collected.
Here is a simple scenario of how the implementation of GST will look like, assuming we take the 10% tax rate.
A) Let's say we take a manufacturer of dairy product. The manufacturer of dairy product will have to buy from the supplier....for example, at RM1 to manufacture the dairy product. Under the GST system the manufacturer paid RM1 and RM0.10(GST), where the RM0.10 is collected for the government.
B) The manufacturer will charge the retailer RM3 and a RM0.30(GST), where the RM0.30 will be collected for the government.
C) After that, the retailer which sells the product to the end user (consumers) at RM5 and a RM0.50 is charged as GST to be given to the government.
After the numerous stages, we can see how the GST add up as a collection of tax for the government.
The next question that comes to mind:
how different is the GST from the current tax system (Sales Tax and Service Tax, SST).
For many people who know and follow about the development of the GST in the country, one will know that it is not a new tax charged on the Rakyat but rather, a replacement to the SST system.
There are two key parts in this tax system, one of is the goods while the other the service. For goods tax, it is normally at 10% and the tax is normally priced into the product price while 6% is charged on the service and is indicated in the receipt.
GST Impact on the prices of goods
There are a few scenarios that we have to look at when we talk about how the impact will be on the prices of goods as there are no straightforward answer. Here are the few scenarios by taking the announced 6% rate.
Scenario 1:
Paying 6% more for certain products that were previously not tax under the SST system. With the GST system, there will be wider range of products/services that are covered.
Scenario 2:
Paying less for the products that were also tax under the SST system for goods and services.
Scenario 3:
Paying the same amount for products previously taxed under the service tax (6%) but not the goods or when the products/services are not covered in both the GST and SST.
Scenario 4:
Paying more because at every stage of the supply chain, there is an increase of products/range and companies that will be charged with the GST system.
In conclusion, there is a risk of the GST implementation that leads to an increase in prices but it is not in a universal manner.
No doubt, concern over the impact of the GST implementation is understandable but given the examples from country like Singapore, there is every reason to be optimistic and confident that GST might just be the right step for Malaysians.
However, the obvious concern here is to make sure that businesses do not take advantage of just the fact that GST has been introduced as a reason to raise prices of goods and services indiscriminately. To this end, the Anti-Profiteering Act has been tabled to enable enforcement against such practices. In theory though, the multi-stage tax nature of the GST should allow the Customs department to aggregate pricing information far more accurately than they do currently, the implied monitoring of this should serve as a deterrent to unscrupulous businesses.
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