What is the impact of zero GST on consumer spending?

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Zero GST Implementation Shows Potential to Boost Consumer Spending and Restore Sentiment

The implementation of zero-rated Goods and Services Tax (GST) from June 1 to August 31, 2018, is viewed as a significant policy shift intended to stimulate consumer expenditure and revitalise consumer confidence. Retailers have demonstrated a willingness to absorb the immediate financial impact of the 6% GST on existing inventory, anticipating long-term benefits from increased sales volumes. This strategic approach, coupled with voluntary early price reductions by some retailers in late May 2018, has contributed to an observable positive shift in consumer sentiment during the initial phase of the zero-GST period.
Retailer Compliance and Industry Strategy

The majority of shopping mall tenants have adhered to the mandatory removal of the 6% GST from retail prices. According to HC Chan, advisor to the Malaysia Shopping Malls Association (PPKM), instances of non-compliance were minimal and largely attributed to initial transitional challenges. For PPKM members, the understanding of the zero-rated tax's significance was high, leading to a low reported number of non-compliance cases. This collective adherence underscores the industry's recognition of the potential "multiplier effect" of complying with the directive, aiming to stimulate economic activity.
Early Price Adjustments and Consumer Response

Retailers proactively initiated price reductions in the latter half of May 2018, preceding the official June 1 start date for zero GST. These voluntary discounts played a crucial role in energising consumer spending and creating a positive "feel-good factor" that carried into the first month of the tax holiday. This pre-emptive action by retailers is seen as a key factor in the "visible upbeat" consumer sentiment observed shortly after the policy's introduction.
Impact on Consumer Sentiment Index

The Malaysian Institute of Economic Research's Consumer Sentiment Index registered 91 points in March 2018. While this indicated an improvement, it remained below the crucial 100-point psychological threshold. Industry observers anticipate that the subsequent release of this index will reflect an improved measurement, correlating with the positive shifts in consumer sentiment observed during the initial period of the zero-GST policy.
Challenges and Divergent Practices

Despite widespread compliance, some sectors experienced complaints regarding prices not reflecting the zero-rated GST. Between June 1 and June 30, the Ministry of Domestic Trade and Consumer Affairs recorded a number of complaints, with a significant portion related to food and beverages, particularly at restaurants and cafeterias. Some restaurant operators, like those represented by the Malaysian Indian Restaurant Owners’ Association (Primas), may have chosen not to pass on the full 6% reduction, either to increase profits or to offset rising business costs they have absorbed over the past three years.

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What is the impact of zero GST on consumer spending?

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