Tax cut inefficient: Bank

THE Government’s proposal to suspend Goods and Services Tax (GST) for selected vital household items, including fuel products, to fight inflation for six months is inefficient and unsustainable, World Bank chief economist for Asia and the Pacific Aaditya Mattoo says.
“It will have fiscal implications and affect the Government’s budget,” he said.
“A more effective way would be to provide direct support to those who needed it.
“During the Coronavirus (Covid-19) pandemic, PNG responded on a broad base rather unselective support to people who needed it, not to all people who needed and people who did not needed it,”
“When you think of price increases, it is to try and regulate the price.
“If you trying to fix a price, you must have black markets and other ways that you can deal with keeping prices low.
“It is either to give subsidies to try and avoid shortages but also give tax exemptions.
“Now the problem with this, especially in a country like PNG which has had a very gross fiscal policy related to market prices, the risk is that you will affect the budgetary situation even more.
“The more efficient way, if feasible, could be to try and provide support directly to the people who need it.
“Not all countries have the infrastructure in terms of digital registry, bank accounts to provide such support in a timely manner.
“PNG does not.
“These are measures that are necessary to provide support in the short term but ultimately hard to sustain primarily in the case of tax deduction and subsidies because of fiscal implications. Also they (tax exceptions) are not the most efficient ways to support those who need it the most.”