MEASURING THE IMPACTS OF GOODS AND SERVICES TAX (GST) AND SALES AND SERVICES TAX (SST) ON THE COST OF PRODUCTION IN MALAYSIA: AN INPUT-OUTPUT PRICE MODEL ANALYSIS SITI NUR’AMALINA SYEDDIN * , AZMAN HASSAN, CHAKRIN UTIT, MOHD YUSOF SAARI AND JUDHIANA ABD GHANI School of Business and Economics, Universiti Putra Malaysia, Malaysia *Corresponding author: nuramalina071@gmail.com Submitted fnal draft: 8 October 2020 Accepted: 29 November 2020 http://doi.org/10.46754/jbsd.2021.03.001 Abstract: The Malaysian government has decided to re-introduce the Sales and Services Tax (SST) to replace the Goods and Services Tax (GST). This decision is expected to reduce the rate of infation, however, it still leaves the members of industries and the public with more questions regarding its impacts on the cost of production. To address this concern, this study is structured to measure the impacts of GST and SST systems on the cost of production in Malaysia. To achieve this objective, an Input-Output price modelling technique is applied. The application of this model takes into consideration the different tax rates under both the GST and SST systems on 124 economic sectors in Malaysia. Results from the analysis suggest that GST has the tendency to reduce the cost of production in the economy while SST drives the cost increment. Meanwhile, these 124 economic sectors are classifed into fve broad economic sectors and the fndings show that manufacturing sectors are mostly affected by these consumption taxes. It is noted that, this fnding is derived based on the assumption that only the consumption tax system will affect the cost of production without considering the impacts of other external factors such as subsidy rationalisation, currency depreciation, minimum wage and market structure. Keywords: Consumption tax structures, cost of production, Input-Output analysis Introduction On the 1 st of April 2015, the Malaysian government introduced the Goods and Services Tax (GST) system as a measure to broaden the consumption tax base. The introduction of GST has replaced the Sales Tax and Services Tax system that were introduced in February 1972 and March 1975, respectively. Through GST, Malaysia become the eighth member in the ASEAN community that implemented such a system following Indonesia that started its implementation in 1984, Thailand (1992), Singapore (1993), Philippines (1998), Cambodia and Vietnam (1999) and Laos (2009). The government’s decision to implement GST is justifed by its capability to increase the economic effciency (Hassan et al., 2016). Specifcally, we can view the effciency in three perspectives. First, GST is capable of reducing the cost of production. Theoretically, the cost of production under the GST system is expected to be lower since businesses are now entitled to claim their intermediate input costs along the supply chain. Second, since the businesses are entitled to claim their input costs, it is expected that the number of business registration would increase. In return, the government can reduce the number of informal businesses that are not registered with the authorities. Third, GST is regarded as a more equitable consumption tax system as it taxes every producer equitably along the supply chain. Despite its role to increase the economic effciency, the literature on this has provided clear evidences that GST may contribute towards infationary episodes. The study that was conducted following the implementation of GST in Canada showed that the system has the Journal of Business and Social Development Volume 9 Number 1, March 2021: 1-12 eISSN: 2600-9668 © Penerbit UMT Journal of Business and Social Development Volume 9 Number 1, March 2021 : 1-12