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The Star
a day ago
- Business
- The Star
‘Don't let traders play the expanded SST card'
PETALING JAYA: The expanded Sales and Service tax (SST) may have a limited short-term effect on inflation, and to prevent dishonest traders from profiteering, economists say Malaysians play a crucial role in curbing unnecessary price hikes. They advise consumers to be vigilant when shopping and avoid buying products from dishonest traders. Economist Geoffrey Williams said consumers must be tough on companies that exploit the implementation of the expanded SST and raise prices unnecessarily. He said they can report such companies for profiteering to the authorities or even name the company on social media. 'Naming and shaming profiteers online is very effective, as well as boycotting the worst offenders. 'But, this requires group action where NGOs and consumer groups can play a role,' said Williams. He also said companies could play a role by being transparent with prices and having comparisons with their competitors. 'Those that treat customers well will keep and gain customers and those with bad attitudes will lose business,' said Williams. He added that consumers should be aware of which products are affected under the expanded SST when they go shopping. 'If they see prices rising on products that had the same tax rate, they can report it to the authorities for profiteering. 'The effect on inflation will be limited and temporary because this is a one-off effect on only a small sample of goods and services. Most of the consumer price index constituents are unaffected,' added Williams. He was commenting on the SST expansion which began on July 1 which saw zero rate taxes remaining for essential goods, while a rate of 5% to 10% was imposed on non-essential items. An 8% service tax will be imposed on rental or leasing services, with no tax imposed on residential housing, reading material, monetary leasing and tangible assets outside Malaysia. A 6% service tax will be levied on construction work services related to infrastructure, commercial and industrial buildings. Socio-Economic Research Centre executive director Lee Heng Guie said consumer activism played a crucial role in addressing unnecessary price hikes and Malaysians themselves should be vigilant and report any unjustified price hikes to the authorities. 'To manage price pressures, the government can improve price monitoring, providing clear communication to the public, and strict enforcement of tax compliance to prevent price gouging,' said Lee. He also said the government could implement awareness campaigns and maintain clear guidelines as well as strict enforcement of tax compliance to prevent excessive profiteering. The inflationary effects from the implementation of the expanded SST, he said, was not expected to have a lasting impact on the country. 'While price adjustments are anticipated, particularly on non-essential items and services estimated between 0.5 and 1 percentage points in the short-term, this will likely taper off over time,' added Lee. He said low- and middle-income earners were likely to be affected by the expanded SST implementation despite exemptions on essential items and cash handouts such as Sumbangan Tunai Rahmah by the government. 'The increase in SST on a broader range of goods and services can lead to price hikes across the supply chain, ultimately impacting consumers, especially those in the lower and middle income brackets. 'While direct consumer impact is limited, some businesses, particularly those relying on rented premises in sectors like logistics, manufacturing, and retail, may experience increased costs due to the service tax on leasing and rental services. 'This could potentially be passed on to consumers,' added Lee. Carmelo Ferlito, economist and chief executive at the Centre for Market Education think tank, argued that the prices of some goods may increase, but stressed that the government should not intervene. 'There are already too many price distortions in the Malaysian economic system,' he said. Inflation was a generalised and persistent increase in the level of price due to the quantity of money increasing, outpacing the growth of the economy's output of goods and services, he said. 'Taxes do not create inflation, government spending does. 'There will instead be inflation if the government expands the money supply to counter the effects of SST,' added Ferlito.
The Star
2 days ago
- Business
- The Star
Manufacturing inching to stability
KUALA LUMPUR: The outlook for Malaysia's manufacturing sector, which showed signs of stabilisation in production activity in June, will depend on several factors – one key element being the potential impact of tariff-related developments. According to S&P Global, Malaysia's manufacturing purchasing managers' index (PMI) rose to 49.3 in June, up from 48.8 in May, marking the highest reading since February. While still below the neutral 50.0 mark that separates expansion from contraction, the latest data signals that business conditions are inching closer to stabilisation. This improvement was underpinned by a softer pace of decline in both output and new orders. External demand also showed tentative signs of recovery, with new export orders moderating at a slower rate, hence contributing to the overall stabilisation in manufacturing activity. At the Asean level, the manufacturing sector ended the first half of 2025 (1H25) on a weak note, with the PMI falling to 48.6 in June. Analysts noted that this was 'the most pronounced worsening in operating conditions since August 2021.' Notably, the region's headline PMI slipped to a 46-month low as output continued to contract across the region, accompanied by sharper declines in new orders, purchasing activity, and employment. Among Asean countries, TA Research said Vietnam recorded the steepest drop in new export orders in over two years. Myanmar's manufacturing sector remained in decline, while Indonesia saw a marked deterioration in operating conditions by mid-2025. Given these mixed regional dynamics and the still-cautious recovery seen in Malaysia, Socio-Economic Research Centre executive director Lee Heng Guie said the local manufacturing sector's trajectory in the coming months will depend on both domestic and external factors. He said Malaysia's June PMI reading, although still below the growth threshold, mirrors global trends and uncertainty, particularly around tariffs. 'With the June number, even though it's still under 50, I think it's quite in tandem with what we're seeing globally – where uncertainty about tariffs remains unresolved,' he told StarBiz. He said this uncertainty may have contributed to Malaysia's weaker trade performance, citing the recent 1.1% year-on-year (y-o-y) decline in exports in May, a contraction that came against market expectations for growth. This, he said, suggests that businesses had previously frontloaded their shipments in anticipation of potential tariff hikes. 'Now, that frontloading appears to be tapering as companies are likely holding back and waiting for the outcome of the 90-day tariff review, which concludes on July 9, before making further decisions.' In the latest development, US President Donald Trump had ratcheted up trade tensions, stating he won't delay the July 9 deadline for imposing higher levies on trading partners. 'What we hope to see in the 2H25 is some clarity. Once we have the numbers after July 9, then businesses, buyers and producers, can plan accordingly, assuming there are no further changes,' Lee said. 'But we still don't know if it will stop there. If it does, at least there's clarity,' he added, referring to the potential for further tariff actions beyond July 9. Turning to the domestic front, Lee said manufacturers are also bracing for rising input costs with several policy changes and cost adjustments set to take effect in July, compounding the pressures already felt from external uncertainties. From July 1, manufacturers are contending with additional cost pressures stemming from the implementation of the expanded sales and service tax (SST), which now covers a broader range of goods and services. At the same time, a new electricity tariff structure has come into effect, introducing tiered components for energy, capacity and network charges. 'For manufacturers, the single-tier sales tax means they pay it upfront, and eventually the cost passes down to wholesalers, retailers, and consumers,' he explained. Although many essential consumer goods remain exempt under the SST, he said manufacturers are grappling with other rising costs, which could further squeeze operating margins. 'Manufacturers have to decide whether to absorb these costs or pass them on. If they want to retain their market share, they may absorb part of it. 'But they can't fully absorb everything ... so either margins get squeezed, or they risk losing customers,' Lee added. As a result, the net effect could be a slowdown in production, especially if consumers respond by cutting back on spending, he added. However, Lee does not expect a deep contraction unless there's a prolonged shock. 'To see an actual decline in production, you'd need many months of negative data or a recession, which we don't see happening right now. But yes, the operating environment is becoming more challenging.' Meanwhile, MIDF Research said the latest PMI reading indicates that the country's modest gross domestic product (GDP) growth recorded in the first quarter of 2025 (1Q25) likely continued into the 2Q25. 'In an earlier data release, industrial production (IPI) growth slowed to 2.7% y-o-y in April (down from 3.2% in March). 'We expect further moderation in May 2025, largely due to weaker export performance during the month, which is likely to dampen output growth,' it added.
The Star
11-06-2025
- Business
- The Star
Export growth hinges on trade talks
PETALING JAYA: The possibility of Malaysia's economic growth outlook being weighed down by the overall exports performance is now becoming more apparent with the latest industrial production index (IPI) and manufacturing data released by the Statistics Department. The government forecasts gross domestic product (GDP) growth of 4.5% to 5.5% this year. For the first quarter of financial year 2025 (1Q25), GDP grew 4.4% after expanding 5% in 4Q24. The prevailing sentiment continues to be that overall exports performance would depend on the outcome of the ongoing trade negotiations to lower the now paused reciprocal tariffs portion of the Liberation Day tariffs imposed by the United States while demand for the country's manufactured goods would depend on global economic conditions and shifts in the supply chain. The April IPI expanded 2.7% compared to the 3.2% growth in the same month a year ago mostly due to the 5.6% rise in the manufacturing index, with the mining and electricity indices contracting 6.3% and 1.6% respectively. Drilling down further, export-oriented industries grew 6.4% after registering a 4.8% increase in March. On a month-on-month basis, the IPI contracted 8%, with export-oriented industries decreasing 10.2%. Socio-Economic Research Centre executive director Lee Heng Guie told StarBiz that the April IPI data presages a weak start to the country's 2Q25 GDP growth and potentially indicates a weakening economy. He expects the front-loading of shipments to the United States under the 90-day reciprocal tariff pause to wane going into May and June. This was reflected in the IPI's April manufacturing index, which rose 5.6% following a 4% gain in March. The reciprocal tariffs portion of the Liberation Day tariffs comes into effect on July 9 following the announcement of a 90-day pause while the baseline tariff of 10% imposed on all goods imported into the United States remains and have been effective since April 5. Malaysia's reciprocal tariff rate was 24%. 'Pending the outcome of tariffs negotiation expected in July, the export-oriented industries are expected to grow moderately in tandem with the anticipated slowing global demand due to the tariffs impact. 'The implementation of the Sales and Service Tax (SST) expansion is expected to soften domestic demand, and hence impacting domestic-market oriented industries,' Lee added. The expanded SST, which would be effective July 1, covers an additional six services categories while there would be higher sales tax rates on selected imported luxury goods. Meanwhile, the April manufacturing data showed manufacturing sector sales value rising 4.8% in April to RM160.6bil compared to the same month a year ago after growing 3.7% in March. Electrical and electronics (E&E) products saw sales value expand 9.8% after increasing 7.4% in March. Month-on-month, sales value dropped by 2.3% compared to RM164.3bil in March. April sales value growth of the export-oriented industries, which accounted for 70.3% of total sales, rose 5.3% compared to the same month a year ago after increasing 4.6% in March. Sales value growth of computer, electronics and optical products increased 10.6% from the same month a year ago after rising 8% in March. On a month-on-month basis, export-oriented industries' sales value growth saw a decline of 3.2%. E&E veteran and Malaysia Semiconductor Industry Association president Datuk Seri Wong Siew Hai said the direction of US tariff policy, global economic growth and the ongoing supply-chain shifts would continue to have an impact on the country's manufacturing sector outlook. 'We need to see the outcome of the negotiations on the reciprocal tariffs to know better the impact on E&E, the tariff levels and how we can prepare for it. 'What we can say for now is that Malaysian companies have benefitted US companies in the half-century that we have worked together and that this relationship should continue,' he said. Wong noted that Malaysia has been a beneficiary of the supply-chain shifts related to the US-China trade rivalry in recent years and may continue to benefit as businesses plan for various outcomes, including on policy uncertainty and geopolitical uncertainty. 'There are many plus one strategies today, not just China+1 but also Europe+1,' he said. Wong said the E&E growth outlook would also hinge on global economic growth, which the World Bank projected to be 2.3% for the year, or nearly half a percentage point lower than projected at the start of the year on heightened trade tensions and policy uncertainty in its latest Global Economic Prospects report. 'Growth for E&E will depend on the sub-sector, we are still seeing demand in artificial intelligence, but this could slow in consumer electronics,' he said. MIDF Research expects IPI growth of 2% this year after the 3.7% increase in 2024, with front loading providing a temporary boost to trade activities and support industries vulnerable to external headwinds. 'Although there could be short term support following the United States decision to pause from implementation reciprocal tariffs, encouraging progress from the ongoing trade talks will be crucial to reduce the adverse impacts of trade tensions on future demand outlook and production activities,' the research house said.
