Measuring the effect of GST towards performances of Malaysian takaful operators

Abstract

Purpose The main purpose of this study is to evaluate the performance of takaful operators in Malaysia. Design/methodology/approach The study applied the data envelopment analysis (DEA) technique and the ratio analysis, using secondary data available on Malaysian Takaful operators’ annual reports. The study period for the analysis ranged from 2013 to 2016. Findings Based on both analyses, the performance of Takaful operators was affected due to the additional cost imposed by the goods and services tax (GST) implementation. Results showed a decline in average technical efficiency for takaful operators upon GST implementation. Research limitations/implications The data were taken from the annual audited reports for selected firms that were available on the firm’s website only, which was limited. The data were taken till 2016, even though the GST is omitted from Malaysia on 1 June 2018. This study has applied Ratio analysis and DEA constant returns to scale (CRS) technique; the future study may adopt both DEA CRS and DEA carrying returns to scale model to evaluate along with other methods to identify the specific factors. Practical implications These findings may associate policymakers in identifying the shortcomings of GST or new tax implementation in a new and emerging industry. So, the policymakers and central banks may adopt necessary initiatives to support the industry. Because the Malaysian government is trying to push the takaful industry along with Islamic banking and finance in the competitive market, takaful operators may be exempted from the current sales and service tax (SST). In addition, takaful operators may use these findings to enhance their operational activities efficiently to improve performance. This paper might help the researchers and practitioners to learn the impact of GST. Even though GST seems not relevant anymore as the government has replaced it with SST, the trick is still the same as it is a kind of tax or costs incurred by the Takaful operators in running their business. Takaful managers may identify their efficient level in managerial aspects as well as the optimal scale of resources by the findings of this study. Originality/value To the best of the authors’ knowledge, this research is original in terms of data that is gathered directly from the annual report of the company during the GST period.