Malls mostly complied with zero GST, even absorbing cost, industry expert says

Ida Lim
Chan pointed out that retailers had voluntarily offered early price cuts even before the zero GST policy started in June. — Picture by Marcus Pheong

KUALA LUMPUR, July 18 — Most shopping mall tenants complied with the mandatory removal of six per cent from retail prices when the zero-rating of Goods and Services Tax (GST) kicked in last month, even at the expense of absorbing the cost, an industry observer has said.

HC Chan, advisor of Malaysia Shopping Malls Association (PPKM), said there were only a small number of retailers who did not comply and suggested that this was due to “teething problems” as in with any transition.

Prior to June 1, retailers who hit or exceed an annual taxable turnover of RM500,000 must collect GST at a six per cent rate from customers.

However, the government announced that there will be zero GST collected from June 1 to August 31, which would effectively be a three-month tax holiday since the Sales and Services Tax (SST) would only be reintroduced on September 1.

“For PPKM members, most of the retailers in the mall understood the importance and significance of this zero-rated tax.

“Statistically, the numbers of non-compliance is very low. This can be seen from the numbers of cases reported are few and all of them were in the early stages of the transition. So far, we have not been made aware of any increase in numbers,” he told Malay Mail when asked if any of the association’s members had received complaints of prices remaining the same or not falling down.

On July 5, Malay Mail reported that the Ministry of Domestic Trade and Consumer Affairs had from June 1 to June 30 recorded 968 complaints of prices not falling and 1,023 complaints of goods becoming more expensive after the zero-rated GST was imposed.

Half of the complaints received in June were related to food and drinks. Most complaints were directed at restaurants and cafeterias at 42 per cent, while 15 per cent were about supermarkets, Malay Mail had reported.

Chan stressed that both mall operators and retailers collectively as an industry understood the “multiplier effect” that could result from complying with the mandatory directive for zero-rated GST.

The zero GST policy could be a game-changer to increase consumer spending and restore consumer sentiments, he said.

Chan believed the retail industry would be willing to endure short-term pain for a long-term gain, after the industry’s weak performance last year with a “subdued growth rate” of two per cent.

“For this, the retail industry had been experiencing lower growth each year with 2017 the lowest. So given an opportunity to revise its fortune (with zero GST), most retailers will gladly comply even though the short-term pain is that they may have paid 6 per cent GST on their existing stocks.

“In return, by absorbing this, they stand a chance to get consumers to start buying more and in the longer-term will be a gain for them,” he told Malay Mail.

Early discounts

Chan pointed out that retailers had voluntarily offered early price cuts even before the zero GST policy started in June — which is seen as having spurred on consumer spending.

After one month of zero GST, Chan shared his observation that there was already a “visible upbeat” consumer sentiment before the policy officially kicked in.

“This was largely attributed to some retailers who voluntarily put forth six per cent discount in the second half of May 2018 right before the 1 June official implementation. Of course, these accentuated the momentum of the feel good factor as we moved into June.

“We should see improved measurement in the next release of the Consumer Sentiment Index by MIER. The last reading stood at 91 points (improved but still below the 100-point psychological mark) in March 2018,” he said, referring to the Malaysian Institute of Economic Research’s quarterly index.

C. Krishnan, vice-president of the Malaysian Indian Restaurant Owners’ Association (Primas), said some restaurant operators may have opted not to deduct six per cent from their prices and pocketed the difference for themselves for higher profits or to offset their losses.

“Some operators are also taking the opportunity by not minusing the six per cent. One is the intention of getting more profit, another is to recover losses, but it’s not right. At least for now, instantly you should bring down (by) six per cent whatever you are selling,” he told Malay Mail, having noted that some restaurant operators had been absorbing costs of between 10 per cent to 30 per cent in the past three years even amid rising business costs.

But he said he had personally went beyond the required reducing of prices by six per cent to account for the zero GST, noting that he rounded down the price that customers at his restaurants have to pay for popular or more heavily-consumed food such as teh tarik as a show of goodwill and to ease their burdens instead of rounding it up.