AFTER three months of doing a roaring trade, businesses are bracing for a slowdown, with the sales and services tax coming into effect today and an unskilled labour shortage crimping operations.

Sentiment is also flagging, with Putrajaya admitting that it cannot pay businesses their goods and services tax refunds as the money was “lost” by the previous Barisan Nasional administration.

GST was zero-rated on June 1, and later abolished by the Pakatan Harapan government.

However, trade groups interviewed by The Malaysian Insight said there were a few bright spots in the second half of the year that could lift sentiment not just for businesses, but also job-seekers.

The Malaysian Employers Federation (MEF) said firstly, some 100,000 workers were due to retire in the second half of the year, potentially creating more job openings.

Secondly, small and medium businesses are looking forward to the tabling of Budget 2019, which will spell out the new government’s economic policies.

“We expect sentiment to improve towards the latter part of the fourth quarter, after the budget is tabled,” said Small and Medium Enterprises Association (SME Association) president Michael Kang.

Budget 2019 will provide the certainty that businesses and the economy have been clamouring for since PH took over Putrajaya in the May 9 general election.

Kang said this would help businesses focus their resources and money in areas the government sought to push.

“Definitely, businesses will be more bullish and optimistic next year, as we upgrade, upskill and improve productivity.”

Higher ‘holiday’ consumption

The services sector, which makes up 55.3% of all economic output of the gross domestic product, grew 6.5% in the second quarter of the year, according to the Statistics Department.

“The growth in services was underpinned by wholesale and retail trade, which recorded a higher growth of 7.3%, fuelled by higher household spending,” said the department’s report on the second quarter’s economic performance.

It said the information and communication sub-sector grew 8.6% due to increased business activity during the 14th general election and FIFA World Cup.

Retailers and wholesalers, especially, benefited from the zero-rating of GST, which drove up household consumption. This was seen in the Statistics Department’s calculation of the private final consumption expenditure, which rose to 8%.

“Higher consumption was seen in food and beverages, communications, restaurants and hotels.”

It said Ramadan and the Hari Raya Aidilfitri celebrations also contributed to consumption growth.

SME Association’s Kang said between May and last month, businesses saw an increase of up to 30% in orders and sales thanks to the tax holiday.

“Business also grew for manufacturers, because retailers and wholesalers take from them.”

SME Association has 100,000 official members out of a total of one million SMEs nationwide. SMEs represent 98% of all enterprises.

Exports in the second quarter grew 8.2%, and were valued at RM245 billion. Electrical and electronic products grew 9.8% and were the main contributors to exports, at RM90.9 billion.

Impending slowdown

Kang said business was expected to decline in the third and fourth quarters, following the implementation of SST.

Although SST will be levied on only 38% of consumer goods and services, big-ticket items, such as household appliances, computers and cars, are expected to be subject to the tax.

“People bought whatever they thought they needed during the tax holiday. So, the later part of the year will likely see depressed sales,” said Kang.

Koay Chiew Guan, president of trade group Samenta, said SST’s impact on consumption could be lessened once the public fully understood how the tax worked.

“There is still some confusion. For instance, there is the assumption that when you change a spare tyre on your car, you will be slapped with a 6% (service) tax.

“But in reality, the 6% is only charged on the cost of labour. Once people understand this, I don’t think SST will impact sales very much.”

The government’s decision to not return GST credit, and the RM16 billion in missing tax refunds, are also depressing businesses.

“The shortage of funds for businesses is making the market more illiquid,” said MEF executive director Shamsudin Bardan.

“We are also worried about the potential rise in labour costs due to the government’s decision to gradually raise minimum wage. Businesses are complaining about not getting enough workers due to the freeze on hiring foreigners.”

Although MEF predicted more job openings in the months ahead, he said, the rising cost of doing business could see employers opting to make do with what they have. – September 1, 2018.