The Influence of Taxation and Economic Growth on Consumers’ Burden in Malaysia

Abstract

The tax reformation and economic development in Malaysia have sparked the motivation of this study to understand the influence of such reform on consumers’ burden. An investigation into these relationships is important due to the current increase on consumers burden which had become a popular issue since the introduction of GST in 2015, and the comeback of SST in 2018 to replace the GST. This study intends to provide evidence concerning Malaysian tax reform and economic growth on consumers burden by examining the influence on price level. It employs the Autoregressive Distributed Lag Error Correction Model (ARDL-ECM) estimation to analyze quarterly data for the period 1996-2020. The findings reveal that indirect taxes have negative relationship both in the short and long run while economic growth is positively related with consumers’ burden. This outcome rules out the public accusation that the tax reform would cause the price level to increase hence worsen the consumer’s burden. Nevertheless, it is the economic growth that consumers need to take advantage of as it positively influences the demand for goods and services hence increase the price. The study shed further direction for the government in formulating taxation and economic policies so as not to compromising the burden of consumers.