Deferment of the Goods and Services Tax (GST) has received positive response overall while some speculate it is a sign of an early general election.

The postponement is the right thing to do, as people are not well informed and educated about the changes and implications of the GST, said AmResearch in its economic update.

It believed the new timeframe could be some time around 2012 when the economic environment was more stable and conducive.

The research house however said it welcomed any move to streamline the taxation system in Malaysia, moving towards a competitive economy to woo more foreign direct investments, the key to attain high-income economy and developed nation status by 2020.

AmResearch hoped the government would introduce a relatively low-rate GST at around three per cent, while personal income tax and corporate tax rates should be reviewed and made more competitive vis-à-vis the percentage in the region.

Critically, there must be a “strong political will” to implement the unpopular consumption-based tax and the key was to set a clear and credible GST roadmap to ensure its smooth implementation, it said.

The government had planned to introduce the GST at a proposed four per cent rate some time early next year but announced its postponement yesterday.

OSK Research said the GST postponement raised the possibility of an early general election next year.

While it expected an election happening possibly in the second half of next year after the Sarawak state election in early 2011, it noted that three of the last four general elections were held in the first four months of the year.

Similar to the political sensitivity surrounding the GST, it believes issues such as subsidy reduction and tariff hikes may also be delayed until after the general election.

Rallies in the stock market

In the run-up to the general election, it expected a slew of good news in the form of major infrastructure developments that would benefit the construction and property sectors.

As such, sentiments on the ground should remain positive and the good news may help spur further rallies in the stock market for next year, it said.

"While it still expects a minor correction in the stock market this month or next month, it now re-rates the fair value of the Kuala Lumpur Composite Index to take into account the potential news flow ahead of an early election," it added.

Accordingly, the research house raised its market price-to-earning ratio to 16 times for 2011, which increased its fair value for the KLCI from 1,580 points to 1,648 points.

Meanwhile, UHY Kuala Lumpur, involved in accounting and consulting services, concurred that the GST postponement was in the nation's interest.

While the GST would provide a stable fiscal revenue to the government, it would also pave the way to lowering of corporate and individual income tax rates together with the replacement of sales and services tax, it said.

The GST was a transaction tax that required transitional adjustments to the total accounting and management systems of all registered businesses, it said.

As part of the transitional adjustments, there would be GST refunds for certain assets to businesses, depending on which GST or value-added tax (VAT) regime that the government adopted, it said.

Given the effects on the fiscal system over the transitional period that could take a few months, the government was right to defer the GST until some of the important economic aspects of the Green Technology Policy and 10th Malaysia Plan were implemented, it added.

- Bernama