GST in Malaysia - Consumer woe

Malaysia's decision to implement the GST (Goods & Service Tax), come 2011 is a bit too hasty.

For some of the 143 countries who has implemented it, I say well done. Most countries started straight from the GST, unlike Malaysia who has the existing Sales Tax & Service Tax at 10% & 5% to be morphed into the single GST at 4%.

For the current 10% Sales Tax, the Ring-system is usually applied whereby in the ring of sellers to buyers, only one seller is entitled to collect the 10% Sales Tax on behalf of the Govt. while the rest are exempted.
For the GST system, at every stage of the seller-buyer transaction, a flat 4% will be collected without fail. Invariably, at the end of the line, the consumers will feel the pinch of the prices of goods to be borned.
In case most of you do not know, in the GST system, manufacturers will have no worry at all because they are allowed to 'offset' the 4% paid which they will be paying by the 4% they will be collecting when they sell.

In theory, the net selling price at the consumer end would be lower than the existing price because at each end of the selling-buying stage, the 4% would translate into a lower selling price for the next stage, in fact by about 15.6%.
However, in reality, especially in the short term, most sellers would want to maintain their absolute profit margin rather than to their profit margin rate. ( e.g. an absolute profit of RM10 calculated from 10% of selling price of RM100, would be better than a profit of 10% of the new reduced selling price of RM99).

It is hope that the short term immediate gain by the sellers ( retailers, especially) would be tapered off in the long term when new product pricings are recalculated by the manufacturers according the 4% GST rate.

After all, wouldn't a lower selling price translate into an increase of sales?

Hopefully so.