Short-term impact will be tough, market recovery in 6-9 months
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THE National ICT Association of Malaysia (Pikom) expects to see an adverse effect on hardware, software and service offerings revenue in the first six months after the Goods and Services Tax (GST) is rolled out on April 1.
Due to the general uncertainties arising from the imposition of the 6% tax on technology products – which currently are not taxed – the association expects price hikes as the rising cost is passed on to consumers.
The expected impact is likely to be an overall slowdown in consumer sentiment and ICT spending, most notably in the consumer retail segment, Pikom said in a statement.
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“We estimate that the next six months will see a general dip in purchases of hardware and gadgets such as smartphones, desktop computers, laptops, printers and other peripherals by households and consumers,” said Pikom chairman Cheah Kok Hoong.
“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.
“Overall, we anticipate a drop of up to 30% in the market,” he added.
Pikom said it conducted a survey on the ‘GST Impact on Business,’ whose results showed that more than 60% of local ICT organisations acknowledging that the GST will significantly impact their revenue.
However, Pikom does not see a great impact on purchasing and investment decisions by larger enterprises, as the 6% tax charged by suppliers can be claimed as input tax from the Royal Malaysian Customs Department – assuming that these companies are GST registrants.
The exemptions to this ruling, whereby input tax is claimable, are GST-Exempt industries, it noted.
Pikom said 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 the Customs Dept as soon as they are charged by their suppliers (in a valid tax invoice).
It is perhaps the mind-set that requires changing and acceptance of such a tax, Pikom argued.
With the continuous education and road-shows throughout 2014 by the Government, various industry associations and non-governmental organisations have allayed to some extent confusion and misconceptions of the GST.
However, there are still grey areas that may require more understanding and rationalisation, Pikom said.
Nonetheless, like many other Asean countries that preceded Malaysia in the adoption of consumption-based taxes like the GST, the market will eventually accept the new tax regime as part of business costs and processes, and sales will recover in the long term, it added.
Differentiation and market competitiveness
In adapting to the situation, ICT retailers are advised to define their differentiations and competiveness in the market.
“Besides trying to reduce internal costs by 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 (pic).
He said that ICT retailers should also try to look beyond pricing, and switch to higher-margin products and services.
These include value-added consultancy, ancillary services such as free delivery and/ or user training, as well as offering strategic bundling or packages to complement sales of hardware and gadgets.
Pikom said it believes that despite the initial slowdown due to the market’s reaction to the GST, Malaysia’s ICT sector is still poised to generate RM95 billion (US$26 billion) in revenue by 2017.
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