The GST rate might be reduced to 5% from 6% if oil prices averaged at US$55 per barrel in 2017, reveals MIDF Research in a report.
But the financial services provider added that if oil prices were to go up as high as US$75 per barrel, another 1% could be shelved while maintaining the current fiscal consolidation target.
The government implemented GST to broaden its tax base and continue with its fiscal consolidation plan, and though deemed unpopular, the tax has mitigated the shortage in federal revenue. Currently oil prices has reached a high of US$52.50 this year.
While all of this looks good, independent economist Lee Heng Guie said the government still needs to look at its committed expenditures before making a move to cut the GST.
While reducing the GST would boost consumer spending, as the consumer sentiment index is at its historical lows, it all depends on whether the government would be prudent in their spending instead of immediately reducing the GST rate.