KUCHING: Various key determinants are showing mixed signals on the direction of inflation for the year ahead as Maybank Investment Bank Bhd (Maybank IB Research) revises its 2015 inflation forecast to between three to four per cent.
“The revision reflects the volatility in, and the mixed picture on, the key factors influencing inflation,” it said in its research note yesterday.
This, it said, was done in view of the volatile crude oil price so far this year; the application of incentive-based regulation (IBR) on electricity tariff that will be affected by the movements in the prices of energy commodities that makes up Tenaga’s fuel cost mix; the still-uncertain effect of Goods and Services Tax (GST) on 1 Apr 2015; and the expectation of volatility – with weakness bias – in the ringgit.
Maybank IB Research said factually and historically, the implementation of the GST should be inflationary.
“From the list of taxable and non-taxable goods issued by the Royal Customs in January 2015, we note that out of the 1,852 items listed, only 13 per cent are zero-rated while the rest are standard rated at six per cent,” it explained.
“This underlines the point about GST being a broad-based tax versus the Sales Tax and Services Tax it is replacing comes April 1, 2015.
“Moreover, the experience of other countries that introduced (or raise the tax rate) GST or similar tax confirmed the one-off inflationary effect.”
The price effect of GST also hinges on industries’ response to GST, Maybank IB Research said, which will be mixed based on indications so far.
“For example, in telecommunication sector, the six per cent GST on the prepaid segment is expected to be passed on to the subscribers, compared to the current six per cent Services Tax which is absorbed by the telecommunication companies.
“For gaming, the casinos and number forecast operators (NFOs) will absorb the GST.”
Meanwhile, the research firm sais there is no guarantee that car prices will fall as a result of replacing the 10 per cent Sales Tax with the six per cent GST.
“The Malaysian Automotive Association (MAA) pointed out recently that for current stock held by distributors and dealers, Customs regulations denote that car companies cannot claim the entire 10 per cent Sales Tax, but only 2 per cent of that.
“This is so because many companies buy vehicles not directly from a licensed manufacturer but through a distributor. The full claim of the Sales Tax is only for vehicles purchased directly from licensed manufacturers.
“Hence, the remaining 8 per cent of Sales Tax has to be borne by the company or be passed on to customers. The 6 per cent GST is also applied to the on-the-road selling price, which includes accessories, road tax, insurance and profit margin.”
Property developers have highlighted that there will be increase in house prices due to GST since although the purchases of residential properties are not subjected to GST, the various inputs to the process of home construction are charged with GST, and there will be some pass through to buyers.
“Some of these are not CPI items such as house prices, but will affect cost of living nonetheless.”
Meanwhile, amid recent public outcry over the apparent lack of pass-through impact of lower fuel prices on the prices of other goods and services, especially the essential items, the Government is launching a nationwide price reduction campaign.
“For a start, a few hypermarkets as well as restaurants have already cutting prices, while Nestle will announce product price cut in the range of 10 to 20 per cent on February 28.”