ISSN: 2222-6990
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Malaysia is the sole nation that has transitioned from the Goods and Services Tax (GST) to the Sales and Services Tax (SST). Nevertheless, it has been argued that both SST and GST exhibit regressive characteristics since they can place a greater financial strain on individuals with lower incomes compared to those with higher incomes. Consequently, this situation can have an impact on the consumption expenditures of households belonging to these lower-income groups. The imposition of the government's tax increment is likely to generate resentment among the general population due to the burden it places upon them. The Department of Statistics Malaysia (DOSM) highlighted that the COVID-19 pandemic had caused most households to endure income declines in 2021, leading to a rise in the proportion of B40 households, as many T20 and M40 groups transitioned to this category. Additionally, higher tax rates on products and services could negatively affect B40, who spend approximately three-quarters of their income on needs. Besides, with a considerably low-income range, the B40 group struggles to meet its necessities. In contrast, the M40 group grows wary of its purchasing powers due to tax policy changes on the prices of goods and services. Using observation data from the DOSM, this study fills the literature gap by examining the impact of indirect tax policy changes on the domestic consumption costs of three income groups in Malaysia. The findings will shed light on the regressivity of indirect tax policy, which affects lower-income households, and justify policymakers' concerns about implementing a new indirect tax policy.
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