SINGAPORE (May 28): Malaysia’s decision to zero-rate the Goods and Services Tax from June 1 is widely expected to provide a small boost to consumer sentiment. Last year, GST revenue was RM44.3 billion ($15 billion) — equal to 3.3% of Malaysia’s GDP. The government is expected to bring back a Sales and Services Tax, which was abolished to make way for the unpopular GST. But the SST generated less revenue — equal to 1.6% of GDP before it was replaced.

DBS senior economist Irvin Seah cautions in a May 18 report that consumers may not necessarily front-load their expenditure in response to a permanent tax cut. “Growth has turned out to be less broad-based and the outlook now appears uncertain after factoring in the impact of post-election policy changes,” he says. “Malaysia’s high household debt-to-GDP ratio of 84.3% could also temper the propensity to consume.” Seah adds that there may be some negative spillover from the government’s efforts to reduce spending in order to make up for the shortfall in GST revenue.

Nevertheless, DBS does expect a lift in consumer and business sentiment to benefit the consumer, automotive, healthcare and banking sectors. “Both consumer and business sentiment took a hit in 2015 when GST was implemented. Conversely, its removal is expected to lift ­sentiment, with the consumer sector as the prime beneficiary,” says a May 17 DBS report. Private healthcare services providers that have been absorbing the GST on drugs and medicine will also see a boost to their margins.

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