KUALA LUMPUR, July 17 ― While Malaysians can indulge in a bit of a shopping spree from a three-month tax holiday, retailers and shopping malls are not necessarily also enjoying cheaper costs that will enable them to pass on savings to consumers.

 

HC Chan, the adviser of Malaysia Shopping Malls Association, pointed out that zero Goods and Services Tax (GST) only makes up an insignificant part of business cost.

 

“With zero GST, most will assume business cost is down but in reality we need to know what constitute the most in business costs.

“Well, utilities and human capital will easily make up up to 70 per cent of the malls' business costs. So zero GST is really a small number in relation to business cost,” he told Malay Mail when contacted, referring to raw materials, utilities and human capital as forming the bulk of business costs.

 

He noted that businesses had already incurred the software costs when GST was first introduced three years ago, and that the costs have yet to be fully covered.

 

“In terms of cost for doing business, GST removal does not significant reduce this aspect as investment on software and compliance costs are sunk in.

 

“Given that GST has only been in effect for 3 years, the amortisation costs will not been fully defrayed,” he said.

 

Better cash flow

 

Chan acknowledged that the zero-rating of GST had improved the cash flow of companies, as it removed the need for them to submit and claim back for refunds from the Royal Malaysian Customs Department.

 

“In many ways, this allow better maneuverability in face of margin compression and volatile headwinds. Companies have better control in managing their cash flow,” he said.

 

Datuk Seri Garry Chua, president of Malaysia Retail Chain Association, said there will be a slight reduction in operation costs and easing of cash flow.

 

“Previously there's comment from some members that refund of GST was rather slow, so that affected cashflow,” he told Malay Mail, noting that the refund sought by each company could run up to hundreds of thousands in ringgit.

 

He noted that retailers in the past had to pay GST upfront first, with their cash flow hampered if government refunds on GST was slow.

 

“Of course cash flow will slightly improve without GST...Some refunds involved in bigger items could affect a lot, for example, imported products, electrical products, the amount is big, it will be quite substantial,” he said.

 

While all traders are required to not include the GST's six per cent tax in their prices for a three month period, prices are not automatically assumed to go lower.

 

The mismatch in expectations and pricing realities have however left some consumers unhappy, with the Federation of Malaysian Consumers Associations (Fomca) receiving unofficial complaints from consumers who felt that there was no significant price drops.

 

Fomca deputy president Mohd Yusof Abdul Rahman said the complainants could have thought that zero GST would result in prices going below the pre-GST price levels, noting also that certain consumer goods have already been zero-rated from the start and that there would be no price changes.

 

“However consumers still save a lot because GST is not only imposed on goods, but also on services, and most of the services that we use now don't have the six per cent GST,” he said.

 

Promotions, weak ringgit

 

Tan Hai Hsin, managing director of Retail Group Malaysia which carries out surveys on Malaysia Retailers Association members, bluntly said that business cost “has not gone down due to zero-rated GST”.

 

“Operation costs went up due to more administrative works on this transition period.

 

“Higher cost also due to more advertising and promotional programmes to inform shoppers on this once-in-a-lifetime promotion,” he told Malay Mail, referring to the tax holiday where no tax is imposed at all.

 

Tan said the retailers' gross profit margin has also been affected by the weak ringgit, as import costs have gone up and also affected importers and manufacturers.

 

Price suppression

 

C. Krishnan, vice-president of Malaysian Indian Restaurant Owners' Association (Primas), indicated that it would take a longer period of two or three months for the zero GST's impact on business cost and cash flow to be apparent, but said the effect would be largely insignificant.

 

“I don't think it's going to bring down lots of difference in operational costs. Operational costs in any organisation is not GST, it's all other things,” he told Malay Mail.

 

While restaurant operators no longer have to pay six per cent tax for most ingredients and have more comfort in terms of buying power, Krishnan pointed out that most of the operators had been suppressing themselves from imposing price hikes after the GST was introduced and despite rising business costs.

 

“The prices were really increasing before election, most of the ingredients were imported, most of the things we used, prices was really hiking up, especially fuel costs, electricity costs, logistics costs,” he said, also citing the weaker ringgit.

 

“Government always tells us not to increase prices despite whatever problems we faced, so we had to obey...We've been absorbing costs, our profit margins were sinking in the last two years,” he said, adding that association members are estimated to have absorbed between 10 per cent to 30 per cent of costs in the last three years instead of passing it on to customers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source :: https://www.malaymail.com/s/1652955/with-zero-gst-are-business-costs-down-for-retailers-shopping-malls-think-ag

17 July 2018, Malaymail.com