MEASURING THE IMPACTS OF GOODS AND SERVICES TAX (GST) AND SALES AND SERVICES TAX (SST) ON THE COST OF PRODUCTION IN MALAYSIA: AN INPUT-OUTPUT PRICE MODEL ANALYSIS

The Malaysian government has decided to re-introduce the Sales and Services Tax (SST) to replace the Goods and Services Tax (GST). This decision is expected to reduce the rate of inflation, however, it still leaves the members of industries and the public with more questions regarding its impacts on the cost of production. To address this concern, this study is structured to measure the impacts of GST and SST systems on the cost of production in Malaysia. To achieve this objective, an Input-Output price modelling technique is applied. The application of this model takes into consideration the different tax rates under both the GST and SST systems on 124 economic sectors in Malaysia. Results from the analysis suggest that GST has the tendency to reduce the cost of production in the economy while SST drives the cost increment. Meanwhile, these 124 economic sectors are classified into five broad economic sectors and the findings show that manufacturing sectors are mostly affected by these consumption taxes. It is noted that, this finding is derived based on the assumption that only the consumption tax system will affect the cost of production without considering the impacts of other external factors such as subsidy rationalisation, currency depreciation, minimum wage and market structure.