Analysts expect this to bolster consumer spending by at least 8%.
Malaysia will totally scrap 6% of its Goods and Services Tax (GST) by June. The newly elected government headed by opposition party Pakatan Harapan will head its implementation.
BMI Research regarded the move as positive for the consumers, considering the improvement of consumer sentiment and low unemployment and inflation. With the GST removal, BMI said that they can predict an 8.2% jump in real consumer spending, which is bigger than their previous forecast of 6.5%.
Furthermore, BMI said that the populist measure introduced by the new leaders are predicted to gear up GDP growth to 5.8% for 2018. Malaysia’s GDP grew by 5.4% in the first quarter which can be attributed to the growing private consumption and net exports growth.
In the past, the GST has been publicly criticized for raising the cost of living. “However, the new Malaysian government is expected to replace the GST with a sales and service tax (SST), scheduled to be unveiled in the next two to three months,” BMI explained.
“The removal of GST will likely boost consumer confidence, prompting consumers to spend more. Consumer sentiment has also been gradually ticking up, rising to 91.0 in the first quarter of 2018, up from 76.6 in the first quarter of 2017, and we believe the government’s decision to remove the GST will further raise confidence levels and fuel household spending,” the research firm added.
BMI mentioned the “tax holiday” which may temporarily rally consumers’ buying sentiment until the new tax is implemented. According to them, this may lead to an uptick in consumer spending.
In the household spending breakdown of BMI research, the biggest change from their forecast revision comes from clothing and footware, which saw a 1.2% increase from their previous forecast.
“We continue to highlight the considerable opportunities for fast fashion majors which will benefit from the large young adult consumers in Malaysia,” BMI said.
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