PROHIBITING a product or service may trigger a severe economic cost as such action is very likely to encourage smuggling and underground/black market activities while lowering the accuracy of the country’s gross domestic product (GDP) calculation as well as causing revenue loss.

The Finance Ministry has estimated Malaysia’s shadow economy making up 21% of the country’s GDP or RM300 bil as of 2019.

Such is the viewpoint of Universiti Malaya’s Department of Economics and Applied Statistics’ senior lecturer Dr Goh Lim Thye following a recent online survey by the Malaysian Muslim Consumers Association (PPIM) to gauge public views on other negative habits of the future generation apart from smoking and vaping.

The findings show that 89% of the respondents wanted the Government to ban alcohol, 69% wanted the Government to ban the sale of sugary beverages, ban gambling (86%) and nightclubs, karaoke joints, and pubs from operating (79%).

“From 2010 to September 2021, the Government collected a total of RM20.11 bil in excise duty on liquor products with an average annual collection of RM1.68 bil while tobacco tax revenue is estimated to be more than RM5 bil per year or more than 3% of total tax receipts,” revealed Goh.

“Gaming taxes contribute approximately RM80 mil per week to the government with special draw taxes totalled RM113.29 mil in 2019 and RM72.53 mil in 2020 respectively.

“Although I agree that alcohol and gaming can lead to addiction and excessive consumption of cigarettes and sugary drinks are harmful to one’s health, the economic cost of prohibiting the aforementioned products/activities may be severe.”

Health Minister Khairy Jamaluddin has announced that Malaysia would introduce a bold new law to ban smoking and possession of tobacco products – including vape – for people born after 2005 as part of a “generation endgame” for smoking in the country.

Dr Goh Lim Thye

A more sensible way to reduce or discourage consumption of those items and activities, according to Goh, is by raising awareness and educating the general public on how excessive and additive activities can be harmful to psychological and physical health.

In this regard, he suggested that policymakers consider raising the minimum drinking and smoking/vaping ages.

“Policy uncertainty is one of the many factors that could deter foreign direct investment (FDI). Policy uncertainty is associated with increased risk and capital cost, hence lowering investment,” explained Goh.

“As a result, policymakers must be cautious in dealing with the issue as competition for FDI is fierce in the region.”

Goh went on to urge policymakers to first focus on restoring the economy to pre-pandemic conditions. Even though Malaysia’s economic recovery is expected to accelerate, the country’s economy is still a long way from reaching 2019 levels.

“The unemployment rate, for example, remains high at 3.9% with about 649,300 people unemployed. Furthermore, Malaysia is experiencing food inflation, hence ay source of tax revenue collected could help vulnerable groups,” he justified.

For now, Goh said the primary focus should be on job creation and reducing income inequality while boosting economic growth.

According to the World Inequality Report 2022, the richest 10% of the global population currently receives 52% of global income while the poorest half of the population receives only 8.5%.

“Positive economic growth is meaningless if it only benefits the elites,” he concluded. – June 17, 2022

Article by: Focus Malaysia