Date of publication: Oct 28, 2013
Section heading: Business Times
Page number: 002
Byline / Author: By Rupa Damodaran
"WE knew this day would come," crooned one rapper.
Maybe not in reference to the goods and services tax (GST), but this line from the lyrics of the song "Daylight" has surely been drummed in many years ago from Putrajaya and warning bells have already been chiming in recent months.
What surprised most market watchers was Malaysia's dare in announcing a high six per cent from the start.
The GST, as the Prime Minister Datuk Seri Najib Tun Razak said, is present across hundreds of countries across the world.
It also goes by the term Value Added Tax in some.
Market watchers like the level but they viewed political will in Malaysia as one of the difficult hurdles for any reform and fiscal discipline to overcome.
They were undoubtedly correct in their observation as the bulging operating and development expenditure levels have been on the rise in recent years, raising fears that our revenue needs to continue to over-depend on our fast-depleting oil resources.
The 2014 Budget checked that fiscal slippage.
Fitch Ratings' call to Malaysia when it lowered the sovereign ratings in recent months merely expedited the plans that the Treasury has been aware of in carrying on with a gaping fiscal budget.
Moody's still feels that Malaysia also needs to get its structural reforms act together, too.
Malaysians will be given 17 months to embrace the new experience and there will be teething periods.
Watch this space in the coming months as manufacturers, especially the small and medium ones, come forth with their frustrations with the thinning profit margins due to the GST.
But the business world cannot afford to overlook the various stimulus measures the government undertook at the height of the economic crisis and the transformation of the economy with new growth centres.
We enjoyed some goodies like BR1M during the previous two fiscal years, thanks to the election budget and the handouts to boost domestic consumption, to help the economy mitigate the effects of the onslaught of the global crisis, which festooned and hit us hard with the slump in external demand.
Introducing the GST at this point when our inflation rate is at a benign two per cent is timely, although there could be some spike in the number in the coming months as the subsidy rationalisation scheme is re-activated.
So, there will be some tough moments ahead as Malaysia looks to frugality as the way forward.
Maybe some pointers from neighbouring Singapore's experience in the GST can guide us on this path.
Credit Suisse Singapore expects retail sales to spike next year but could potentially slump in the few months when the GST is implemented, only to normalise eventually.
With the exception of the telecommunications sector, most of the sectors could be negatively impacted - either through a slowdown in top line growth or a potential squeeze in margins.
The Singapore experience showed that those sectors that underperformed included consumer discretionary, real estate, real estate investment trusts, healthcare, utilities, financials and technology sectors.
Singapore started early, hence, its ability to gradually increase the GST rate to its current seven per cent level.
Its government was careful in ensuring that any rate increase would be supported by an "offset package" to help the majority of the people, which consisted of cash payouts (GST credits, growth dividends, senior citizens' bonuses), Central Provident Fund top-ups (post-secondary education account top-ups for students, Medisave top-ups for older Singaporeans), and rebates (on utilities and public housing service and conservancy charges).
It also extended assistance to those who lived in smaller homes while low-in-come workers enjoyed a wage subsidy through the Workfare Income Supple-ment.
The authorities in Singapore were also watchful for the profiteering traders who used the GST to hike prices, although several retail and supermarket chains absorbed some nominal increase in GST for a short term.
Can we also expect some GST credits like BR1M extended to the broad middle income bracket?