STAYING COMPETITIVE: Goods and services tax will woo investments, says bank
MALAYSIA is poised for an upward re-rating by Fitch Ratings within six months of implementing the goods and services tax (GST), Kenanga Investment Bank Bhd said yesterday.
Its senior vice-president, Wan Suhaimie Saidie, said a positive rating for Malaysia by Fitch is possible as the new tax regime signals a move towards prudent fiscal balance.
Wan Suhaimie reckons that the government will impose the tax regime by July 1 next year, which should help the authorities register a deficit of 3.1 per cent of gross domestic product (GDP) by 2015.
Besides practising prudent fiscal balance and good debt management, Wan Suhaimie said Malaysia needs the GST to maintain international competitiveness in attracting investments and to sustain economic growth.
Malaysia was supposed to implement the GST on January 1 2007, to replace the existing consumption tax regime.
Under the GST regime, the 10 per cent sales tax and six per cent service tax will be abolished.
"We also anticipate that the introduction of GST will be accompanied by a reduction in corporate and individual income tax rates, which would make our tax structure regionally and globally competitive," said Wan Suhaimie.
If the GST takes place on July 1 2014, it will be more positive for fiscal balance, and the government will meet its target to cut down fiscal deficit to three per cent by 2015," he said at a media briefing yesterday.
However, if the GST is enforced early next year, he said it may cause the economy to grow at the lower end of five per cent, compared with the projected growth of five to 5.5 per cent in 2014.
He said if the government implements the GST on January 1 2015, the impact on the gross domestic product growth would be more moderate, at about 0.3 to 0.5 per cent.
Meanwhile, Kenanga Investment Bank is "cautiously optimistic" that there is room for the stock market to trend higher this year, by as much as five per cent, from the current level.
Head of research, Chan Ken Yew, said for the time being the trading will be rangebound, but there is more than enough domestic liquidity to stir the market.