GST reduction a boost to consumer sentiment — Analyst

KUCHING: Analysts are optimistic following the goods and services tax (GST) being reduced to 0 per cent effective June 1, 2018, particularly towards the consumer sector.

However, the MoF stopped short of reintroducing the sales and services tax (SST). AmInvestment Bank Bhd analyst Philip Wong believed there may be a short-term transitional period between the two tax regimes.

The SST is widely expected to eventually replace GST. However, taken at face value, prices will be effectively 6 per cent lower to end consumers during this transitional period.

“We are positive on the development as it would immediately lift consumer sentiment, and general average selling prices for goods and services will ultimately be broadly cheaper to the end consumer – even after the reintroduction of SST,” Wong explained in a note yesterday.

“We cannot readily determine the precise impact to prices as it is a function two unknown variables – firstly, the degree of the SST rate, which varies between 5 per cent and 10 per cent and secondly, the initial manufacturing cost.”

The AmInvestment Bank analyst noted that end consumers effectively pay GST on initial manufacturing costs and the price markup by resellers.

“We believe that inmost instances, it is effectively greater than the absolute value of SST on initial manufacturing cost solely,” he added.

Looking at subsectors, despite the retail sub-sector being the largest beneficiary, AmInvestment Bank did not identify with any particular retail companies under oits coverage due company specific driven
circumstances.

Food and beverage subsector does not typically benefit from greater disposable income. However, given the unique properties and circumstances of the companies under our coverage, we have identified Power Root and Berjaya Food as the top picks for the sector.ted by up to +3 per cent.

Following this move, AllianceDBS Research Sdn Bhd (AllianceDBS Research) anticipated other goodies which could be on the way.

“Beside the abolishment of GST, other goodies contained in PH gov ernment’s manifesto which we believe will help to boost consumer sentiment include abolishing tolls gradually, providing targeted petrol subsidies to those who use motorcycle below 125cc and car below 1,300cc, extending the duration of PTPTN student loan repayments, and reducing the excise duty for imported cars below 1600cc for first car buyers.

“The objective of the PH government in unveiling these populist measures is to address the high cost of living, particularly for the Bottom 40 households.”

These measures should rally consumer sentiment to strengthen further, it said.

“The recent consumer sentiments index (CSI) statistics released by the Malaysian Institute of Economic Research (MIER) shows that it has increased quarter on quarter to 91 points in 1Q18, the highest level reached since September 2014.

“With the upcoming economic stimulus to be implemented by the newly elected PH government, coupled with the feel good sentiments arising from the new administration, we believe that the CSI will continue to strengthen going forward which is generally positive for the consumer sector.”

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