Businesses and spending looking up

PETALING JAYA: With the three-month “tax holiday” beginning today following the zero-rating of the Goods and Services Tax, economists are expecting a surge in spending and business activities at a time when the world is facing uncertainties.

Socio-Economic Research Centre executive director Lee Heng Guie expects a boost in consumer spending.

“This will also boost festive buying.

“And consumers will take this opportunity to spend more, especially on big-ticket items,” he said.

Lee said the boost would be taking place at a time when the new government would have to be more vigilant in its own spending due to several external challenges, including trade tensions between the United States and China, and with the expectation of a US interest rates hike.

“The new government will have short- and long-term plans to keep the economy growing and ensure consumers continue to spend as such spending is a main pillar of the economy,” he said.

Alliance Bank chief economist Manokaran Mottain said the boost in consumer spending could offset the impact from the cancellation of mega projects.

“This is positive for retailers. Consumers will also look at big-ticket items like cars,” he said.

“As what Finance Minister Lim Guan Eng said, the transition from GST to SST (Sales and Services Tax) will bring RM17bil back to the people (for the rest of the year).

“For the three-month tax holiday, it will be about RM8bil to RM9bil.

“We expect a multiplier of two times, so it will be about RM16bil added into the Gross Domestic Product (GDP) in the form of a higher consumption,” Manokaran said.

He said the cancellation of mega projects, which also means a lower consumption and public investment, will likely have some impact on the economy.

“With some geopolitical tension, the impact is even more.

“That’s why we are seeing the stock market yo-yo.

“With the tax holiday to boost private consumption, I believe it is sufficient to offset the impact on the economy – at least for this year.

“People are still not clear about the direction of the economy. Every day there are new announcements. But as more information comes out, we would see some stability,” he said.

Malaysian Retail Chain Association president Datuk Seri Garry Chua believes that the sentiments would continue to be good, especially with Hari Raya approaching.

He said GST was one of the things that hindered consumption the last few years.

“In 2014 and 2015, growth (for retail sales) was sluggish. Even last year, it was only 2% and this year, we project it to be 4% or more with the robust sentiments in the marketplace,” he said.

Master Builders Association Malaysia president Foo Chek Lee said it would be cheaper for consumers to renovate their houses.

“For the smaller contractors – those with a turnover of less than RM500,000 – they can’t claim back the input tax from the Government. With a zero-rated GST, there should be lower costs on building materials.

“For the bigger construction companies, they will have better cash flow with a zero-rated GST.”