Malaysian economic seem to be performing well after financial crisis 1997 in Asia

and also 2008 in United State (Riley, 2015). However, Malaysia, China, Indonesia and some
other the countries faced losses due to the several issues occur on financial crisis in the year
of 2015. According to International Energy Agency (2015) and The Malay Mail Online
(2015), crude oil price of Malaysia fell over 60% in half-yearly of 2014 due to strong demand
of US dollar and pressure by copiousness of supply. Malaysia is second largest oil producer
in Southeast Asia and much dependent on natural resources such as oil and gas revenue.
When oil price fell cause Malaysia loss of national revenue and reduce the government
operation cost (Rodi, 2015).
Besides, price of oil fell and strong demand of the US Dollar also make the currencies
of many country devaluating such as country Malaysia, Beijing, Singapore and so on (Rodi,
2015). Mahavera (2015) points out that if the price of oil fell below 40 US dollar, it will
subsequently cause the current account of Malaysia deficit because Malaysias foreign
currency reserves are depleting, ringgit of Malaysia are weak and having a high debt level.
The depreciation of Malaysias currency shows that Malaysias external debt increase.
According to Sam (2014), the average of Malaysias external debt are RM 43 billion in the
year between 1990 to 2013 but it increase to RM740 billion after the second quarter of 2014
and suspect some of the fund was use for the One Malaysia Development Berhad (1MDB)
and Malaysia Sovereign Wealth.
As the debt of Malaysia get higher time by time, taxation become an economic tool
for Government to manage the countrys economic especially those developing countries
such as China, Indonesia and Malaysia (The International Statistical Institute. (n.d.) and
Loganathan et al, 2007). According to Makarenko (2007), Manufacturers sales Taxes (MST)
was introduced by Canada in 1924 to apply to the manufacturers sales price of the goods
produced in Canada and to customs the value of imported goods and it been replace to GST
in 1st January 1991. GST is a comprehensive Value-added tax (VAT) on supply of good and
services (Somasundaram, 2010). According to NBC (n.d.), Malaysia Government was
implemented 6% Goods and Services Tax (GST) on 729 types of goods and services from 95
industries effectively from 1st of April 2015, even so, there was economic recession. One of
the purpose that Malaysia implementing GST is to reduce oil dependency and the offset of
the income of government (The Malay Mail Online, 2015). There are several practical issues
arise after implementation of GST during the situation where the price of oil was reduced and
currency of Malaysia was depreciated.
1

The consumers purchasing power of the consumer became lower due to the inflation.
Khazanah Research Institute (2014) was found that households who are earned lower than
RM2000 per month majorities are Bumiputeras. In Malaysia, bumiputeras are counted for a
large proportion which is 61.3% (Indexmundi, 2014). Which are directly reduce the
consumption in Malaysia. According to Xu et al (2015), restaurant are first to be hit by GST
due to price increase, because restaurant have charge 16% for services tax and GST, number
of consumer will be greatly reduce on dining in restaurant. Besides that, those businesses
which are not registered under GST cannot be charge GST, but they been charged by supplier
on food and raw material, so they have to increase the price of good and service to cover the
GST that they paid, for instance, the price of food and raw material increase by 50 sen and
the beverage price also increase by 20 to 30 sen, it is quick a lot if consumer purchase in huge
quantity (Tan, 2015; Xu et al, 2015). Furthermore, Shamasundari (2015) stated that housing,
RON 97 fuel, electricity bill above 300 units, tuition fees, beautiful services and insurance
have subjected to 6% GST and which is necessary service for consumer, thus the living cost
of consumer increase.
However, demand for basic food due to price be cheaper after GST. According to
Azlee (2015), price of red grapes and imported beef in Sabah, and the price of mandarin
oranges and local cabbage in Sarawak was decrease. Yeong (2015) comment that the price of
the car be cheaper after GST. For example, according to Harith (2015) the price of the locally
assembled Honda models be cheaper between RM500 to RM2500. It encourage people to
purchase cars after GST to increase consumption. In other hand, the income tax of Malaysian
had been reduce after GST, it was reduce from 26% to 24% for the earner who are earned RM
100,000 to RM250,000 and who are earned more than RM 400,000 are required to pay 25%
for income tax, for who are earned below RM 5,000 are no required to pay income tax (The
Star Online, 2014; Malaysia Salary, 2014). Which show that the purchasing power of the
middle class earner was increase.
Based on my research, the living standard of people increase after implement GST
and affect the business in Malaysia. Tan (2015) reported that Singapore are implement GST
at 3% first after now increase to 7%, it was not affected the business of Singapore because the
people there have enough time to adapt. However, Malaysia suddenly implement GST by 6%,
many people cannot accept it and it effect industries such as education, domestic travel,
import trade and healthcare services indirectly. According to Jong (2014), national school will
be affected by inflation after implement GST, even education are GST-exempt. For example,
2

the international and private schools fees will increase from ranging RM 10,000 to RM
90,000 annually due to cost of materials, infrastructure and services subjected to GST
increase. This cause many parent are tighten their belts for send their child to such school to
receive quality education in order their life be better in future (Jong, 2014). Additionally,
book, e-books and tuition fees re subjected to 6% GST, which also will increase the expenses
of parent (Shamasundari, 2015).
Moreover, domestic travel has been affected due to consumer tighten their belts.
According to Shamasundari (2015) the cost of travel increase due to travel insurance, tour
package, land transportation, air transportation, meals are taxable. For example, cost of a
three-day-night trip to Langkawi for before GST is RM 2580 but after GST it is RM2730,
which are increase RM150 expenses (Shamasundari, 2015). More important, there are six
restaurants closed in Sabah due to reduce in number of tourists (Malaysian Chinese News,
2015). Not only travel industries been affected but also import trade. According to Borneo
Post Online (2015); KTP (2014) the price of the imported good be expensive due to ringgit
has depreciated and added GST in import duty, it make import good most expensive and
reduce the consumer purchasing abilities. Moreover, the private healthcare and certain
medication also been affect due to many items, service and non-essential drugs be taxed, even
healthcare are GST-exempt (Business Insider Malaysia, 2015).
However, the Malaysias trade surplus increased to RM2.86 billion due to currency
depreciation and GST-exempt because the price of exported good be cheaper (The Borneo
post, 2015). The Government offset the GST on export to make exports be more comparative
or lower opportunity cost of the resources used (Guell, 2003; KTP, 2014). However, the
property industry seen to be good after implement GST. Many buyer are focus on wanted to
purchase a property even after GST and the property market will be open more in the future
to improve Malaysian economic (The Star Online, 2014). As a result, investment in property
increase due to condominium are not subjected to GST and more property company came
out the plan that buyer purchase house with only paid 2% to 3% instalment and start paid the
loan after the construction finish (The Star Online, 2014). For example, the volume of
housing in Johor increase 7% and the price of house in Johor increase by 80%, and the
minimum price of housing at Penang and Selangor are 1 million (The Star Online, 2014).
According to The Star Online (2014), the property market are stable especially after finish the
LRT construction.

Based on my research, financial system of Malaysia had been affected due to

economic unstable after implement GST during the situation of currency depreciation.
According to Malaysian Legal Community (2015), Bursa Group such as securities market,
derivatives market, Labuan International Financial Exchange (LFX) have charged GST to
several activities fees such as trading, clearing, and so on. Besides that, buying and selling of
bond and share are GST-exempt but the services transaction and agent commission are
subjected to GST (Malaysian Legal Community, 2015). Moreover, Jamaluddin (2015) and
Chuah (2015) stated that banking transaction such as fund transfer, bill payment and MEPS
transaction are subjected to GST, which will affected over 300 products and services of bank
member and at least 17.6 million online banking users. Lets take an example, Maybank
holder withdraw from CIMB ATM, will be charge MEPS RM 1 and on top of that plus 6% of
GST, total is RM 1.06 charge per transaction (Klein, 2014). As see from this situation, the
cost of trading in financial market raise and make people to reduce investment in financial
market due to cost increase but reduce in actual profit and reduce usage of banking services
after implement GST (Atan, 2015). If household spend more money after GST, and reduce
saving, it will cause financial institution lack of liquidity and affect the trade of Malaysia and
reduce the branded good from foreign country.
Furthermore, according to The Borneo Post (2015) businesses and investor are
concern on ringgit be undervalue issue and reduce the investment in Malaysia. This situation
will cause the foreign direct investment (FDI) of Malaysia reduce and aggregate demand
reduce also. For example, the FDI of Malaysia was reduce 41.8% to RM 21.3 billion in the
first half of the 2015 compare with RM 36.6 billion in first half of 2014 (Mustapa, 2015). In
addition, insurance company was affected also after implement GST. Dhesi, (2014)
mentioned that the insurance products such as medical, accident, critical illness without
death benefit and other rider are standard-rated at 6% except life insurance. As a result, most
of the insurance product are increase their premium due to GST and the operating cost for
insurance company was increase, this make insurer have much pressure to boost their
business with a product which is comparative and innovative to attract people to purchase.
Meanwhile, it also will affect insurance company to provide fund for development of the
economy.

However, after implementing, GST Bank Negara have enough monetary to regulate
and stabilise the financial system to achieve sustained economic growth. Tax Guardian (2013)
state that the purpose of indirect tax is to increase the national income and contribute to
national development such as science, creativity, human resources and innovation area. For
example, Government was invested in human resources through expenditure in training for
member and give scholarship for those who are poor to continue their study (Tax Guardian,
2013). According to my research, some of the sales of the investment company has increase
as well due to the share price are dropping in bad economic. According to Buffett (2011), he
is always buying stocks at a bargained price, as it is the more aggressive in terms of
investment. According to Office for National Statistics (2015), the business investment in
quarter 2 of 2015 was grew by 2.9% compare to quarter 1.
In overall, implement GST have gain disadvantage more than advantage that impact
for the Malaysias economic state and Malaysian purchasing power, even though it may cause
unemployment increase. According to Trading Economic (2015), Malaysia unemployment
rate are increasing from 3.10% to 4.5% which is from 438 thousand in May 2015 to 450
thousand in June 2015. I would like to recommend some ways for government and central
bank to solve this problem. First, to increase our country GDP, government has to increase
the current market wage and subsidies to unemployed worker to increase the aggregate
demand (Dosi et al., 2012). Besides that, by impose fiscal policy to market to growth the
economic in the long-run and indirectly will increase the mark-up too (Dosi et al, 2012). For
example, Government can decrease direct taxes, increase income, increase in government
spending to country and decrease public debt to overcome the recession problem (Dosi et al,
2012). Moreover, according to Dosi et al. (2012), central bank can using easy monetary
policy to reduce the reserve requirements, lower interest rate and buy open market operation
from public to increase the aggregate demand to make the Real GDT of Malaysia to rise by a
multiple of the increase in investment. Furthermore, according to Cultural Ministers Council,
(2008) government have to focus on creative and innovative in some sector such as
technology, organization and also enterprises to create new product to increase net export to
make economic country growth faster.

In additional, central bank also can peg the currency rate to stabilise the exchange
rate to reduce the currency depreciate problem (Hisham, 2015). Last, ensure and support the
local product and provide good quality to consumer to expand local economy (Lim, 2015)
After the studies and research about the pro's and cont's of GST, I would recommend the
Government and central bank are able to overcome the economic problem and fiscal deficit
problem as the first priority as our country suffer quite large amount of losses. So that, GDP
would able to increase since the current GDP was drop due to the implementation of GST.
For example, Malaysia was using tight fiscal, monetary policies and expansionary policies to
recover the financial crisis 1997 (Ariff & Abubakar, 1999).