KUALA LUMPUR: Goods and services offered by the financial sector will be exempted from the government's proposed goods and services tax (GST) because it is "difficult to tax", chairman of the tax review panel at the ministry of finance Datuk Kamariah Hussain said on Monday, March 15.

Kamariah, who is in charge of the implementation of the GST, said the government was following the precedent set by countries like Singapore and New Zealand which did not impose GST on the finance industry.

This exemption is in addition to the list of goods like usage of electricity and water (up to a certain limit), basic foods, public transportation and residential property which had been announced by the government earlier.

Speaking at the Chartered Tax Institute of Malaysia's seminar on "GST: The Way Forward" here on Monday, Kamariah said the GST was also expected to reduce the average consumer price index (CPI) by 0.1% because the GST taxation at 4% (rate when introduced) would be lower than the current sales and services tax rate of 10%.

The predicted reduction in CPI is, however, based on the assumption that businesses will pass on whatever costs they save to consumers, she said, adding that "it will be a challenge for the government to ensure all (cost) savings are passed on to the consumers".

Kamariah said not all sectors would see a reduction in CPI, noting that "there is a reduction of CPI in eight sectors, but an increase of CPI in five sectors".

"CPI in some sectors will go up, while it will go down in some sectors, and it will remain the same in certain other sectors," she said.

If, however, businesses do not pass on the tax savings to consumers, the average CPI is expected to eventually rise by 0.82%.

"From the experience of other countries, it is a one-off kind of price increase. In other words, at the time of implementation perhaps, prices will go up by that much but after that, prices will somehow stabilise," she said.

In her presentation, Kamariah said with the GST rate of 4%, components that would see an increase in CPI included education at 0.75%, recreation and culture 2.21%, health 2.07%, food and non-alcoholic beverages 0.67%, and food away from home at 0.88%.

Components that would see a reduction in CPI are clothing and footwear at -2.71%, communication -1.86%, furnishing & household products -1.57%, alcoholic beverages -0.73%, restaurants and hotels -1.2%, transport -0.94%, housing, water and electricity -0.12%, and miscellaneous goods and services -0.08%.

The CPI is a measure of the price change of a selected basket of goods and services and is indicative of a country's level of inflation.