The government today announced that it has postponed the implementation of the Goods and Services Tax (GST).

According to the Finance Ministry, a new date will be announced later. The tax was earlier scheduled to come into effect on Jan 1 next year.

There are fears from citizen groups that the new tax, which will replaced the current Sales and Services Tax (SST), could further dampen the still-weak consumer sentiment, increase prices and fuel inflation .

In an immediate response, the Federation of Malaysian Manufacturers (FMM) said it was "pleased" with the decision to defer the tax.

The FMM had expressed concerns that the tax would increase the costs of doing business for the manufacturers especially the small and medium enterprises (SMEs).

"The implementation of GST will have an eroding impact on the competitiveness of our local industries with particular emphasis on exporters," said the FMM in a statement.

"During this time of acute global competition and high energy prices, any rise in costs can affect our industries' competitiveness and dampen the demand for our exports."

According to FMM, more time is needed to conduct a comprehensive study on the appropriate consumption tax model.

"Our own research has shown that an average of 2-4 years may be required for discussion and deliberation before a decision can be made.

"In the course of further research and study, the continued effectiveness of the SST as a consumption tax should not be discounted in preference over the GST."

Value-added concept

At present, the government is levying sales tax on goods at the point of import or at the manufacturers' level and a service tax on selected services, including those provided by professionals and operators of hotels and restaurants.

The introduction of the GST is part of a review of the taxation system proposed by Prime Minister Abdullah Ahmad Badawi, who is also finance minister, in his first budget in 2004.

He said the GST tax, which is based on a value-added concept, would be more 'comprehensive, efficient, transparent and effective', thereby enhancing tax compliance.

"The introduction of this new tax will also provide the government with the opportunity to reduce corporate and individual income tax rates," he added in his 2004 budget speech.