Analysing the macroeconomic impact of GST implementation for Malaysian economy: Evidence of CGE model

Abstract

Goods and Services Tax (GST) is a general consumption tax imposed on goods and services. In the face of an increasingly challenging economic performance, the government’s deteriorating revenue and stagnant investment levels have resulted in a deficit. Besides reliance on oil and gas revenue, Malaysian therefore has implemented GST at 6 per cent in April 2015. In this paper, we use a generally equilibrium model (CGE) to examine the wider macroeconomic impact on this GST policy. We found that while GST increased government revenue and brings about 2 per cent increase in real Growth Domestic Product (GDP), it manages to handle investment levels. Additionally, GST leads to increase the fixed investment and in real consumption and the welfare through declining of consumer price index by 0.2 per cent. As GST is excluded from exports of domestically manufactured products, the impact of six per cent of GST is increased by the export of goods and services produced domestically. On the other hand, a decline in real production is inevitable, provided a decrease in personal disposable earnings, real investment and consumption, the food and beverages and accommodation sector will see the greatest decrease in production by -0.34 per cent and the information and communication 0.24 per cent. While the import impact of GST, we can see the percentage of changes are slightly small rather than export. This statement coincides with the results found showing that imports are exceeding the exports. In this highlight, the ideas on the implementation of GST is to upgrade the government tax collecting mechanism and beneficially to contribute to national GDP.