GST kicks in on
1 April 2015
Malaysia imposes for the first time a 6% GST
from 1 April 2015. It pushes up the cost of living for average Malaysians. 80% of an average Malaysian grocery basket would
increase by some 4%- 6% (partly due to the weak Ringgit as well). Only the bare
necessities, such as sugar, baby formula milk, bread and flour, do not attract
the 6% GST. It is not surprising that the maiden GST implementation will
likely be negative for most sectors in Malaysia, except telcos.
Eroding
purchasing power: This will almost certainly crimp purchasing power for the man on
the street, as most will not benefit from the 1-3 pp cut in personal income
tax. Only 2.015 mn Malaysians (or 7% out of a population of 30 mn and 17% out
of a workforce of 12 mn) pay income tax.
Impact
from GST
The
Singapore experience: If the Singapore experience is a guide to consumer spending
behaviour, then one should expect accelerated spending a few months ahead of
the GST, especially in durable consumer goods. This will lead to
below-trendline domestic consumption for about six months after implementation
of GST, but the negative impact due to the introduction will likely be
temporary, and consumer spending will eventually normalise.
As
consumers are front-loading their purchases, one would expect 1Q15 sales in
Malaysia to be boosted by pre-GST hoarding, and 2Q and 3Q15 sales would be
lacklustre, hence quarterly profit announcement in 2015 will be volatile.
While GST kicks-in in April
2015, the 1pp corporate tax cut from 25% to 24% is lagging a year behind, and
will only be implemented in the year of assessment in 2016. This could be a
double-whammy for corporates in Malaysia in 2015, as they will have to confront
a potential slowdown in demand and a potential increase in costs due to the GST
and the weak Ringgit, but without a corporate tax cut; thus, margins will
likely get squeezed.
