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Wednesday, March 25, 2015

GST pre-digestion

Concluded that GST will have a MAJOR impact on our core inflation figure (will be higher) and prices will NOT go down contrary to state media. There is no such thing as deflation in a country when the interest rate is not even near zero. Take Japan and Europe as an example of deflation.

**My thoughts on the impact is highlighted in Red
**Please let me know if you think I missed something important out?
Other good reading:

1. Fuel
Ron 95, diesel and LPG (natural gas) will be exempted from GST. Only Ron 97 will be subjected to the new 6% GST.
-None, because if you can afford Ron 97 you probably are rich enough that the 6% is negligible otherwise the impact is none to usual consumers, even trucks are spared because they use diesel.

2. Utilities
Water is exempted. A household will only have 6% GST charged to the electricity bill for usage above 300 units. This means the first RM77 has not GST. Any amount after that is subjected to 6%.
-Moderate, this is a monthly expense. Assuming a RM250/month bill, you are looking at RM10 tax per month and about RM120-RM150 tax a year.
From Tenaga's webpage
3. Insurance
All insurance policies except for life insurance will be charged 6% GST. GST would also impact all traditional and investment-linked policies which had medical, critical illness or personal accident benefits attached. For traditional policies, the GST is imposed on the premium, while for investment-linked policies, it is charged on the insurance charges. For investment-linked policies, insurance charges will escalate with age because of higher insurance charges.
-Major, this is one of the worse because it impacts everyone regardless of age and gets increasingly more taxing as you age due to insurance charges. It is very difficult to estimate the cost because it varies according to age and what you have insured. I am looking at a RM500 impact on my yearly expense for having a traditional policy, two investment-linked policies and PA at age 29.

4. Credit Card
RM50 government tax is now abolished. However 6% GST is applied on the card's annual fee. It is said that this separate charge will clearly be reflected in your credit card statement.
-Minimal as it is once per year, cost can be reduced if you have fewer cards and if you manage to hold the bank hostage by asking the bank to waive the fee. RM24/year impact assuming you have two cards with RM200 annual fee each.

5. Books and e-books.
6% GST applies to all publications except the following: dictionaries, encyclopedias, newspapers, texts, references, works and religious books. And yes GST will be imposed on magazines.
-Minimal but actually it depends on what you buy, assuming half of the tax rebate of RM1000 goes to magazine you are looking at a RM30 cost per year. 

6. Housing
Basic construction materials are taxed: cement, bricks and sand. These make up 44% of construction cost and since GST will be charged cost will go up. Residential property including SoHo (small office/home office) will be exempted but not commercial properties.
-Minimal, some would argue with me that's ok we can debate over bf/lunch/dinner. Property companies expect GST to result in a maximum of 2.6% increase in house prices. However with the housing boom and asset peak already over, it is more likely than not likely that house prices will remain stagnant except for really prime locations. Why would BNM not use interest rate to defend the MYR? Because it knows that such a repeat would make us go back to 1999 crisis where house prices collapsed.

7. Automobiles
First, new vehicles will incur GST on the FINAL selling price of car (see pic). Please note that this includes margins, handling/inspection fees and accessories therefore the tax will be on a much HIGHER base than before. Second, used vehicles are not subjected to the current sales service tax but is also NOT under a GST zero rated item either therefore I suspect used cars are going to get big shock later once GST is implemented. Third running costs like motor insurance and servicing are subjected to GST. Only Ron95 petrol and diesel are off and so is license renewal and road tax but these are not high cost to begin with.
-Major, as mentioned almost every aspect of owning a vehicle is GST-able. Like insurance this is difficult to estimate and is based on the car that you own. You are probably looking at the thousands for a new car/used car and several hundreds for yearly running cost.
From, Malaysia's #1 source for auto news 
8. Banking
The RM1 MEPS fee charged when we withdraw from another bank’s ATM will increase to RM1.06. No GST will be charged if you make a withdrawal from your own bank’s ATM. Similarly, other services offered by the bank, such as money transfers (e.g. cashier’s order and demand draft), telegraphic transfers, money exchange, loan, cheque, credit card, and debit card will see 6% GST charged to its service, commission or subscription fee.
-Minimal, unless you do very very frequent transactions. Please note that this is GST on the FEE not the amount of the transfer/loan/credit/debit and etc.

9. Other Services
6% GST will be imposed on tuition fees, as tuition centres are not categorised under educational institutions. The price of beauty services like manicure, and hair and facial treatments will be subjected to 6% GST too. Massage services are also chargeable with the GST if the annual turnover for such businesses is RM500,000 and above. Aside from beauty services, cosmetics and other products for skin, hair and body care will also be charged GST. Beauty products sold at airports as duty-free items will NOT be subjected to GST.
-Major, the tuition fee is a big ouch as it is a monthly expense. For RM400/month, you are looking at almost RM300 tax a year. Beauty services and products will hurt ladies a lot. Depending on your monthly cost but it's going to probably be a few hundreds tax impact per year.

10. Restaurant
If you look at restaurant bills, you are already paying 6% government tax and 10% service charge. GST will replace the government tax and since both are taxed at 6% there is no difference. However because of the new tax regime, the GST is applicable on the service charge (service charge is collected by restaurants for services rendered and is traditionally set at 10%). Assuming a bill of RM100, currently you will pay RM6 govt tax and RM10 service charge for a total of RM116. With GST you will pay RM10 service charge and RM6.60 govt tax (110*6%).
-Minimal as this is a daily expense. If you frequent restaurants in shopping malls and spend roughly RM500, you are looking at an additional RM3 per month.

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