041 148 5thICBER2014 Proceeding p569

569
5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

RESEARCH (5TH ICBER 2014) PROCEEDING
24 -25 MARCH 2014. PULLMAN HOTEL, KUCHING,SARAWAK, MALAYSIA
ISBN: 978-967-5705-13-7. WEBSITE: www.internationalconference.com.my
STUDY ON THE POSSIBLE IMPACT OF GST TOWARDS MALAYSIA USING SELECTED

ECONOMIC INDICATORS: CASE OF SINGAPORE, THAILAND AND INDONESIA AS
MODEL COUNTRIES
Siti Norbaya Mohd Rashid, PM Dr Hj Asry Yusoff, Nor Haryanti Md Nor
Faculty of Business Management
Universiti Teknologi MARA Cawangan Kelantan
norbaya@kelantan.uitm.edu.my
asry249@kelantan.uitm.edu.my
yanti647@kelantan.uitm.edu.my
Ros Khairul Bariyah Shaik Asgar
rbariyah54@gmail.com
ABSTRACT
Good and Services Tax (GST) or known as Value Added Tax (VAT) is replacement of Sales and Service Tax
that has been used for 160 countries in the world and only 41 countries in the world has not started to
implement GST or VAT. GST is the form of indirect tax because the tax collection from the government is
not directly obtained from the taxpayers. The consumers pay the taxes to the government through the
sellers. Since Malaysia is going to implement it in 2015, the main objectives are to gain more national
revenue and cover the debt deficit. Government still does not know to what extend the implementation
of the GST able to achieve the objectives. The purpose of this study is to identify whether GST can affect
the Consumer Price Index (CPI) and Structural Balance. Data of the GST revenue, Structural Balance and
Inflation Rate from three countries which are Singapore, Thailand and Indonesia has been collected from
year 1992 until 2012. Parametric and non-parametric test has been used to test the sample besides
visual observation. This study found that there are no comprehensible relationship and association
between GST towards CPI and Structural Balance. Economists need to forecast the upcoming
consequences that might happen to the economy after the implementation on GST. Besides that, future
researchers need to extend the period of the data in order to get more accurate result.
Field of Research:
Good and Services Tax, Consumer Price Index, Structural Balance
1. Introduction
Good and Services Tax (GST) or known as Value Added Tax (VAT) is replacement of Sales and
Service Tax has been used for 160 countries in the world and only 41 countries in the world has not
started to implement GST or VAT. GST is the form of indirect tax because the tax collection from the
government is not directly obtained from the taxpayers. The consumers pay the taxes for the
570

government through the sellers. A GST or VAT is a form of consumption tax. From the perspective of the
buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a
product, material, or service, from an accounting point of view, by this stage of its manufacture or
distribution. The manufacturer remits to the government the difference between these two amounts,
and retains the rest for themselves to offset the taxes they had previously paid on the inputs. The
purpose of VAT is to generate tax revenues to the government similar to the corporate income tax or
the personal income tax.
Each of the countries has economic purposes due to the implementation of GST. For example, in
New Zealand the usage of GST is unlikely being a useful stabilization tool for monetary policy (Iris Claus,
B. S. ,2008). The empirical study shows that using GST as a monetary policy tool in New Zealand case has
shown that it leads to a larger adjustment in the policy instruments and fluctuations in the real economy
and inflation.
From the case of Singapore (Lau, Jarren and Contaxis, 2013), Singapore main objective of
introducing GST are to reduce the inefficient income tax system, broaden the indirect tax base and make
the tax base more resilient for the long term in view population aging. Singapore government using the
tax restructured by reducing the income tax rate and combined with the introduction of GST by which is
actually narrowing the governments surplus.
2. Implementation of GST
In Malaysia study done by Rizal Palil, A. I. (2012), The International Monetary Fund has urged
Malaysia over the years to introduce GST. However, several issues has been brought up such as GST will
bring the price of goods go down, but some said there will be an increasing of price if the GST occurred
in the system when especially it is known as multi stage tax where every stages of manufacturing will be
taxed. Shantayanan Devarajan, S. J. (1991) founds that VAT is going to generate as much as business tax
did and it will be recognized as additional revenue to the Thailands government.
Devarajan, Jitsuchon and Sussangkarn (March,1991) states that introduction VAT in Thailand
generally it eliminates cascading nature of business tax. This study has already predicted that VAT is
going to generate as much as business tax did and it will be recognized as additional revenue to the
Thailands government. The researchers also believe that, VAT is going to make price hike-up. It is
common expectation since most of the research has claimed the same issue
3. Structural Balance
Tom Bolton, B. D. (2004) based on Canadian research showed that Canada has enjoyed the
growth of the structural balance. While McLure (1987) argued that the imposition of a VAT would
improve the nations balance of payments as it will give advantageous to the balance of payments.
Based on the Malaysia case, the major reason why the government wants to introduce the GST is
because this country cannot finance the capital by using debt (Lau, Jarren and Contaxis, 2013).
However from Mukul G. Asher (1999), GST is not going to make less fiscal deficit in certain
countries. GST may have least contribution to any country. The statutory tax GST in Singapore is only 30
percent which is a very small amount to make a conclusion that structural balance will be normal for
GST.
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4. Inflation (Consumer Price Index)

GST probably may cause price increase but it is one of the ways to minimize the inflationary
impact of the economy as in the case of Singapore where it maintains the inflationary pressure from
hike up (Rizal Palil, A. I., 2012). Research done by Valadkhani and Layton (2004) mentioned that eight
capital cities in Australia supporting the view that there were no significant differences in the average
price changes among the states arising from the introduction of GST. Increasing price level in Canada
however occurs only once after the implementation of GST but not increasing the inflation rates much
(Bird and Smart, 2009).
5. Objectives of the study
GST plays the role important as an additional tax revenue to the country but the problem is to
know how efficient this tax system. The objective of this study is to study whether there are any
association relationship between each Consumer Price Index and Structural Balance with Goods and
Services Tax. This is due to the research done by Patrick Grady (1990) where GST has lowered the
consumable income and will affect the inflation rate but not cure the fiscal deficit.
6. Methodologies
This study used non-parametric statistic to test and analyze the data in order to see the
relationship between GST towards CPI and Structural Balance. For the Spearmans correlation the data
was taken in continuous data (actual data). The Chi-Square will show the significances of the result while
Visual Graph is to view the pattern of trends.
7. Finding & Discussion
7.1 Association Relationship between GST and CPI
GSTR
Pearson Correlation
Sig. (2-tailed)
N
SINGAPORE
GSTR
CPI
1 .399**
.000
106
106
Pearson Correlation
Sig. (2-tailed)
N
.399**
.000
106
THAILAND
GSTR
CPI
1.000
-.283**
.000
311
311
INDONESIA
GSTR
CPI
1.000
-.228
.283
24
24
Spearmans rho
CPI
1
106
-.283**
.000
311
1.000
311
-.228
.283
24
1.000
24
The Spearman correlation coefficient for Singapore is .399. As the sign of the Pearson
correlation coefficient is positive or weak positive correlation, it can be concluded that there is a postive
correlation between GSTR and CPI. That is CPI increases when the GST is implemented or GST rate
increase. While for Thailand, Spearman correlation coefficient is -0.283 a negative or weak negative
correlation, it can be defined that there is a negative correlation between GSTR and CPI in Singapore
model. That is CPI decreases will make GST rate increase or vice versa. There is negative relationship

572

between CPI and GSTR in Indonesia. The value is -0.2228 which is weak negative correlation. Any
increase in GSTR will lead to the decreasing in CPI.
SINGAPORE
4
4
1
.001
Value
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases
13.035
14.410
df
11.269
106
THAILAND
Asymp.
Sig. (2sided)
.011
.006
16
16
1
.000
Value
58.573
69.399
df
22.398
311
INDONESIA
Asymp.
Sig. (2sided)
.000
.000
2.818a
2.890
1
1
Asymp.
Sig. (2sided)
.093
.089
2.701
24
.100
Value
df
For Singapores CPI chi-square is 0.011, it means there is a significant relationship between CPI
and GST based on Singapores model and CPI level is positive.
The value of Chi-Square for CPI for Thailand is 58.57 while p value for chi-square is 0.000. It can
be concluded that, there is a positive relationship between CPI and GSTR.
Value of relationship between CPI and GST for Indonesia value of Chi-Square is 2.818 and the p
value is 0.093. It proves that, there is no significant relationship between CPI and Structural Balance
since the value is exceed the minimum value.
8
7
6
5
RATE
4
GSTR
CPI
2
1
1/7/2013
1/1/2013
1/7/2012
1/1/2012
1/7/2011
1/1/2011
1/7/2010
1/1/2010
1/7/2009
1/1/2009
1/7/2008
1/1/2008
1/7/2007
1/1/2007
1/7/2006
1/1/2006
1/7/2005
1/1/2005
0
-1
-2
Visual Graph between GST and CPI (Singapore)
On the visual graph above, it consists of two upwards and downwards trend and prior to that
matter there is a connection between GST and CPI but its only happen in a weak stage since the CPI rate
is volatile and not fixed accordingly with the increasing of GST. However there is a similar trend of GST
upon CPI at Singapore market.
Correlation coefficient between GSTR and CPI (Thailand)

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According to the graph above, the correlation of CPI and GSTR for Thailand market is not
significant. The data is not match and do not have any connections at all, since we can see that GSTR is
increase but the CPI is not follow it accordingly. Means that, other factors may be contributed to the
factor of increasing CPI.Based on the graph it is a different trend to compute whether GST and CPI
correlate to each other.
90
80
70
RATE
60
50
40
GSTR
30
CPI
20
10
0
SPEARMANS
CORRELATION
CHI-SQUARE
VISUAL
GRAPH
GST-CPI
GST-CPI
GST-CPI
Positive Weak
Correlation
Significant
Similar trend
Negative Weak
Correlation
Significant
Different Trend
Negative Weak
Correlation
Not Significant
Similar Trend
COUNTRIES
SINGAPORE
THAILAND
INDONESIA
Visual Graph correlation between GST and CPI (Indonesia)
The statistical data and the graph show the exact answer when the CPI is not correlated with
GSTR in Singapore. On the graph above, the value of GST has been converted to the rate to match with
the value of CPI. From the graph motion, the CPI line shows a little fluctuate and skyrocketed in 1998 but
collapsed in 2000.
Table above shows the conclusion for the association of the variables between GST and CPI for
Singapore, Thailand and Indonesia. Spearmans correlation the result is two negatives against one
positive that shows GST and CPI has negative correlation. On Chi-Square test, two significant results
against one insignificant result that shows there is a significant relationship between GST and CPI.
Concluded GST does contribute to the increase on inflation or price level. On the visual graph
574

explanation, two countries show similar trend between GST and CPI which makes two against one that
clearly state the motion of GST more or less will influence the motion of CPI. According to Tait (1990)
most of the29 countries over 35 countries that have been observed during before and after the
implementation of GST recorded two results that having no impact in price level or CPI and only
happened one-time increased in price level. The countries falling into this category included France,
Germany and United Kingdom. The remaining countries were characterized as having some acceleration
in the rate of inflation.
7.2 Association Relationship between GST and Structural Balance
SINGAPORE
GSTR
STRUCTURAL
Pearson Correlation
GSTR
Sig. (2-tailed)
N
Spearmans rho
Pearson Correlation
CPI
Sig. (2-tailed)
N
1.000
35
.456**
.006
35
THAILAND
GSTR
STRUCTURAL
.456**
.006
35
1.000
1.000
-.037
.713
103
-.037
.713
103
103
35
1.000
103
INDONESIA
GSTR
STRUCTUR
AL
1.000
-.830**
.000
24
24
-.830**
.000
24
1.000
24
The Spearmans correlation for Singapore shows that there is positive relationship between
Structural and GSTR at a value of 0.456. Any increase in GSTR will lead to the increase in Structural
Balance.
The correlation between GSTR and Structral for Thailand have negative correlation at -0.037. the
value is also not significant since its record the lowest value which is less than 1. It also can be assumed
that, the result is weak negative correlation between GSTR and Structural Balance.
The Spearmans correlation shows that there is strong negative relationship between Structural
and GSTR in Indonesia. The value is -0.830 which is strong negative correlation. Any increase in GSTR will
lead to the decreasing in Structural Balance.
SINGAPORE
Value
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases
9.287
10.046
9.022
35
df
1
1
1
Asymp.
Sig. (2sided)
.002
.002
.003
THAILAND
Value
15.816
15.836
.026
103
df
4
4
1
INDONESIA
Asymp.
Sig. (2sided)
.003
.003
.871
Value
17.183
21.942
16.467
df
1
1
1
Asymp.
Sig. (2sided)
.000
.000
.000
24
The p value for Singapores Chi-Square is 0.002 and the Chi-Square value is 9.287, meaning that
there is significant relationship between Structural Balance and GSTR.
The p value for Thailands Chi-Square is 0.003. There is significant relationship between CPI and
Structural Balance on Thailands case and the value of Chi-Square is 15.816.
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Value of Chi-Square for Indonesia is 17.183 and the p value is 0.00. It proves that, there is a
significant relationship between GST and Structural Balance since the value is less than the minimum
value.
25000
20000
15000
GSTR
10000
S TR U C T U R A L
5000
0
5
0
0
2
1
Q
5
0
0
2
3
Q
6
0
0
2
1
Q
6
0
0
2
3
Q
7
0
0
2
1
Q
7
0
0
2
3
Q
8
0
0
2
1
Q
8
0
0
2
3
Q
9
0
0
2
3
Q
9
0
0
2
1
Q
0
1
0
2
1
Q
0
1
0
2
3
Q
1
1
0
2
1
Q
1
1
0
2
3
Q
2
1
0
2
1
Q
3
1
0
2
1
Q
2
1
0
2
3
Q
3
1
0
2
3
Q
Visual Graph between GSTR and Structural Balance (Singapore)

The graph above is only parallel at the beginning year of 2005-2007 but discontinuous the
parallel when the value of Structural Balance in Singapore is being peak and drop for several years.
Based on the graph there are two upwards trending for Singapore market and the majority of the value
increased above the GST revenue. GST has similar trend based on the visual graph in Structural Balance.
Visual graph correlation between GST and Structural Balance (Thailand))

Even tough, the result of statistical is significant but the graph above shows contradict
relationship where there similar trend between GST and Structural Balance at Thailand since the value
of GST keeps increasing but the value of Structural Balance is turns to be decreased. The motion of the
graph is moving opposite to each other and literally means it is different trend.
500000
400000
300000
h
ia 2 0 0 0 0 0
p
u
R 100000
n
o
ill
i
0
B
-1 0 0 0 0 0
-2 0 0 0 0 0
-3 0 0 0 0 0
G ST R
S T RU CUT RA L
0
9
9
1
2
Q
2
9
9
1
2
Q
4
9
9
1
2
Q
6
9
9
1
2
Q
8
9
9
1
2
Q
0
0
0
2
2
Q
2
0
0
2
2
Q
4
0
0
2
2
Q
6
0
0
2
2
Q
8
0
0
2
2
Q
0
1
0
2
2
Q
2
1
0
2
2
Q
576

Visual Graph correlation between GST and Structural (Indonesia)

The statistical data and the graph show the Structural Balance is not correlated with GSTR at
Indonesia. The value of GST moves upward while the value of Structural Balance moves downward.
From the graph motion, it is not correlated because both graph moves opposite direction and it has
different trend. The Structural Balance line flattened out to be negative starting Quarter 2000 and the
range getting wider from time to time.
STRUCTURAL BALANCE
COUNTRIES
SINGAPORE
THAILAND
INDONESIA
SPEARMANS
CORRELATION
GST-STRUCTURAL
GST-STRUCTURAL
VISUAL
GRAPH
GST-CPI
Positive Moderate
Correlation
Significant
Similar trend
Negative Weak
Correlation
Significant
Different Trend
Negative Strong
Correlation
Significant
Different Trend
CHI-SQUARE
Spearmans Correlation shows two negativity correlation against one positive correlation, which
means the result has to determine the test has negative correlation between GST and Structural
Balance. The Chi-Square shows all significant result on the study of GST and Structural Balance and
indicates the positive relationship on GST and Structural Balance. Visual Graph says different, when only
Singapore has a similar trend on GST and Structural Balance, while the case of Thailand and Indonesia
give opposite figure from Singapore when having different trend from the result of GST and Structural
Balance. There is no possible association on GST with Structural Balance using majority result at two
negativity against one positivity. There is a negative association between GST and Structural Balance
using the result of three countries, where two countries reported that GST and Structural Balance is no
associated with each other.
8. Conclusion and Future Recommendation

Royal Malaysian Custom need to minimize irresponsible profiteering activities and strengthen
the governments credibility when the tax reform. Profiteering activities can be reduced by enforcing the
display of actual amount of GST payable on the price tag. Items that are zero-rated or exempted from
GST should carry similar tag that informs consumers. Also, the custom should encourage establishment
of local consumer associations to assist in gathering reports of price fixing since local households are
more sensitive to price changes than enforcement agencies at the national level.
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On the other hand, the government should commit to a 5-year timeline when introducing the
GST and review the tax with the possibility of raising it by 2020. This commitment restricts the
government from arbitrarily increasing or removing the GST to promote price stability.
References
Abbas Valadkhani, A. P. (2003). Quantifying the Effect of GST on Inflation in Australias Capital Cities: An
Intervention Analysis. School of Economics and Finance Queensland University of Technology.
Adams C., W. P. (2001). Small business owners attitudes on VAT compliance in the UK. Journal of
Economic Psychology, 195-212.
Asher, M. G. (March 1999). Tax Reform in Singapore.
Drs. Robert Carroll, R. C. (2010). The Macroeconomic Effects of an Add-on Value Added Tax.
Govind, S. (2013, June 7). All Business Daily. Retrieved from The Malaysian Reserve:
http://themalaysianreserve.com/main/news/corporate-malaysia/3886-pwc-gst-has-tax-benefits
Grady, P. (1991). An Analysis of the Distributional Impact of the Goods and Services Tax.
Iris Claus, B. S. (2008). Variable GST : A tool for monetary policy in New Zealand.
Kamaruddin, S. B. (2013, November 20). The National University of Malaysia. Retrieved from The
National University of Malaysia News Report: http://www.ukm.my/news/index.php/en/extras/1614-gstneeded-to-reduce-fiscal-deficit.html
Le, T. M. (April 28 2003). Value Added Taxation : Mechanism, Design and Policy Issues. World Bank
course on Practical Issues of Tax Policy in Developing Countries .
Michael Smart, R. M. (2009). The Economic Incidence of Replacing the Retail Sales Tax with Value Added
Tax : Evidence From a Canadian Experience.
Muir, R. S. (1993). The Goods and Services Tax : Reflections on the New Zealand Experience, Six Years
On. Revenue Law Journal.
Norden, S. v. (2011, March 15). Worthwhile Canadian Initiative. Retrieved from A mainly Canadian
economics blog : http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/03/structural.html
Nur Hafizah Abdul Mansor, A. H. (2013). Goods and Services Tax (GST) : A new tax reform. International
Journal of Economics Business Management Studies.
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Rizal Palil, A. I. (2012). The impacts of goods and services tax (GST) on middle income earners in
Malaysia.
RUEBLING, C. E. (1973). A Value Added Tax and Factors.
Shantayanan Devarajan, S. J. (1991). A Value-Added Tax (VAT) in Thailand:.
Singh, B. (2013, April). Malaysian Personal Tax Simplified. Tax Guardian, pp. 31-33.
Tom Bolton, B. D. (2004). An Empirical Note on the Comparative Macroeconomic.
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Forward. Tax Guardian, pp. 12-15.

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569

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

STUDY ON THE POSSIBLE IMPACT OF GST TOWARDS MALAYSIA USING SELECTED

Good and Services Tax, Consumer Price Index, Structural Balance

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

4. Inflation (Consumer Price Index)

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

24 -25 MARCH 2014. PULLMAN HOTEL, KUCHING,SARAWAK, MALAYSIA

Visual Graph between GST and CPI (Singapore)

Correlation coefficient between GSTR and CPI (Thailand)

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

24 -25 MARCH 2014. PULLMAN HOTEL, KUCHING,SARAWAK, MALAYSIA

Visual Graph correlation between GST and CPI (Indonesia)

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

Visual Graph between GSTR and Structural Balance (Singapore)

Visual graph correlation between GST and Structural Balance (Thailand))

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

Visual Graph correlation between GST and Structural (Indonesia)

8. Conclusion and Future Recommendation

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

5TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC

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