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GST: Prepare for 30% dip in retail ICT sector, warns PIKOM

AvantiKumar | March 25, 2015
But GST will not significantly impact the enterprise sector and we are still on course to achieve the 2017 revenue target, said PIKOM Chairman, Cheah Kok Hoong.

Cheah Kok Hoong_PIKOM Chairman  

Photo - Cheah Kok Hoong, Chairman, PIKOM.

 

PIKOM, expects a 30 percent drop in Malaysia's retail and small business ICT sector as a short-term reaction to the new Goods & Services Tax (GST, effective 1 April 2015), while the enterprise sector will not be significanty impacted, said the National ICT Industry Association.

PIKOM chairman Cheah Kok Hoong said the ICT retail sector will most likely be hardest hit and retailers should "differentiate themselves strategically to weather slowdown with market recovery likely in 6-9 months ahead".

Cheah said that the imposition of the 6 percent GST on technology products and services (currently zero percent under the existing Sales and Service Tax regime) has created general uncertainties.

He said PIKOM therefore "expects price hikes across a large number of hardware, software and service offerings as rising cost is passed on to consumers."

This will likely result in an overall slowdown in consumer sentiment and ICT spending, most notably in the consumer retail segment, said Cheah.

 Enterprise sector unaffected

"We estimate that the next six months will see a general 'dip' in the purchases of hardware and gadgets such as smartphones, PC, laptops, printers and other peripherals by households and consumers," he said.

"We expect smaller companies in particularly Small and Medium Enterprises (SMEs), to be more affected by the GST with most delaying their ICT investments for now," said Cheah.

He added that PIKOM's "GST Impact on Business" survey showed that more than 60 percent of local ICT organisations acknowledged that GST will significantly impact their revenue.

However, Cheah mentioned that PIKOM does not see a great impact on purchasing and investment decisions by larger enterprises and corporates as the 6 percent charged by suppliers can be claimed as input tax from the Royal Malaysian Customs Department (RMCD); assuming that these companies are GST registrants (the exemptions to this ruling whereby input tax can be claimable are the GST Exempt industries).

"It is important to note that for GST registered companies, the effect of this value-added tax is neutral as they can claim the input tax from RMCD as soon as they are charged by their suppliers (in a valid Tax Invoice)," he said. "It is perhaps the mind-set that requires changing and acceptance of such a Tax."

Cheah said that the education and 'road-shows' held during 2014 by the Government, Associations and NGOs should have helped to clear some of the confusion though "there are still 'grey' areas that may require more understanding and rationalisation".

However, he said that in common with other Asean countries that have adopted a form of GST, the local market will eventually accept the new tax regime as part of business costs and processes and that sales will recover in the long term.

 Differentiation

"Besides trying to reduce internal costs through improving business efficiency or providing additional services to maintain their customer base, retailers are encouraged to consider leveraging on emerging and fast-growing ICT trends that are perforating the market and to position themselves strategically so they can benefit when the market picks up," said Cheah.

ICT retailers should also try to look beyond pricing and switch to higher-margin products and services, he added. "This includes value-added consultancy, ancillary services such as free delivery and / or user training as well as offering strategic bundling or packages to complement sale of hardware and gadgets."

Cheah said that despite the initial slowdown due to the market's reaction to GST, Malaysia's ICT sector is still poised to generate RM95 [US$26.04] billion in revenue by 2017.

 

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