World Economy

Malaysia Tax Hike Could Harm Growth

Malaysia Tax Hike Could Harm GrowthMalaysia Tax Hike Could Harm Growth

An unpopular new consumption tax has handed fresh ammunition to critics of Malaysia’s embattled prime minister, with angry consumers complaining it has sent some prices surging, and economists warning it could harm growth.

The government on April 1 introduced the six-percent Goods and Services Tax or GST, which taxes transactions throughout the business supply chain and replaces earlier sales and service taxes on end-consumers that ranged from 6 to 10 percent, Yahoo News reported.

The government had said the more streamlined tax regime would lead to lower prices for many key items and boost government revenue in Southeast Asia’s third-largest economy.

Experts agree Malaysia’s biggest tax reform in decades is necessary—fewer than three million of the country’s 30 million people pay income tax, and high government debt has economists worried.

But implementation has been marked by mass confusion over how the tax works, its array of exemptions, and contradictory government statements, with many businesses hiking prices amid the uncertainty.

The issue sparked a May Day protest by thousands of opponents and has provided fresh fodder for ruling-party forces seeking Prime Minister Najib Razak’s ouster over allegations of corruption and mismanagement.

“We are victims of a mismanaged economy. [The GST] hurts the poor and the middle-class like me,” said Kuala Lumpur pre-school teacher Siti Nora Manaf, 62.

Like many Malaysian consumers, she already faced rising costs, with the ringgit currency at its weakest in years due to concerns over the impact of soft world oil prices. Malaysia is heavily dependent on energy exports.

Siti Nora said the price of a bag of rice — supposedly exempt from the GST — has jumped 40 percent since April 1 amid the confusion. She has begun growing vegetables in the small garden at her home, while slashing other living costs.