‘SST aimed at boosting people’s wellbeing’
KUALA LUMPUR: The reintroduction of the Sales and Services Tax (SST) was done with a different objective compared with the Goods and Services Tax (GST).
While noting that the SST was aimed at achieving economic wellbeing rather than gaining higher revenue, former Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said it was important to have clarity when formulating policies that concerned the public, such as the rising cost of living.
“We need clarity on what is the objective in formulating any policy and what is to be achieved. If your objective is to mobilise revenue, then, of course, GST will mobilise a significantly higher amount of revenue.
“But sometimes, you have to take into consideration other objectives. One important objective is economic wellbeing. One of the things that we looked at when I was at the central bank was the cost of living.
“The objective of the SST is to reduce the burden and enhance the economic wellbeing of the people, and this is the difference between the two tax regimes,” she said in an interview recently.
Zeti also said although at the time the government said the inflation was at three per cent, wage increases were not commensurate with the rising cost of living.
“Salaries can only rise if productivity increases, and how does productivity increase? Economic reforms, such as in education system and skills development, are needed in order to raise productivity.”
On the RM17 billion gap left following removal of GST, the postponement of the deficit target and the weaker ringgit, which contributed to the higher cost of living, Zeti said at certain times, a higher level of inflation and deficit had to be tolerated to keep the economy growing.
“Another aspect of it is, if you let your economy slow too much, it is hard to recover. But if it slows down slightly, like where we are now, and we manage it well, we can lift it up in a shorter period of time and with less stimulus later on.
“What I am saying is, not only there has to be an understanding that we have to tolerate, for a short period of time, probably a larger deficit, we also have to demonstrate what we are going to do to return to fiscal sustainability.”
She also gave an example that in 2008, when the crude oil price increased sharply to US$147 (RM611) a barrel and Malaysia’s inflation went up to seven per cent, the central bank did not raise interest rates and was criticised.
“Any responsible central bank should be raising interest rates to rein in inflation. But at that time, this was going to cause an economic slowdown because a high percentage of consumption demand was on fuel and food.
“If we were to raise interest rates just because the inflation was seven per cent, it would have caused the economy to slow down even further. So we didn’t.”
Bank Negara was later vindicated when most central banks lowered interest rates and affirmed that it was the right thing to do.