After the victory of Ex-boss party, we saw that a lot of ex-boss friend had jump out to help the country and we have got 1 of the most respected Robert Kuok coming back this week to attend the “Eminent council meeting”.
Its surprising isn’t it? However, the thing that we want to discuss today is not about Mr Robert Kuok but Tun Daim.
Tun Daim is good especially in Economics, Entrepreneur as well as politic. Of course, BCF is nowhere near Tun Daim, but what BCF is writing today is just to analyse the latest step taken by Tun Daim.
As we are all well aware, Ex-boss party’s manifesto is to abolish GST. BCF believe it would have to go through a lot of hassle in order to abolish it and it wouldn’t be able to settle within 100 days, hence the fastest way to do it is to revise it to 0%. As a result, MoF came out with their official statement which is to revised down the rate to 0% starting from 1st of June.
Of course, this had causes a lot of havoc where the business owner will complain whether how about them whom had paid GST for their stocks? Well, BCF can’t really comment much about this as we will need to wait for further instruction from the new government.
2 days later after the announcement from MoF, Tun Daim had also announced that the SST will be introduced 2 to 3 months later as this will need to go through the parliament.
This also mean that we are going to have a Tax Holiday! Woohoo! So what does that mean to consumer? As soon as the govt announced GST to 0%, we saw that a few of the car dealers came out with their GST free promotion for this Ramadhan. The discount range from few k to 70k which had attracted a lot of interest around me.
So what can you see? Other than car, BCF believe a lot of big tix item might be facing the same case as well (if the seller willing to do the same) and we saw that Courts have come out with this 6% off for everything in their website. If this were to happen, those consumer might start to buy these things again as the discount is too tempting!
What does that mean if the people around you started to spend on big tickets item again? This means that the economy started to move again. Why is it important? This is because the definition of good or bad economy is depends on the velocity of money turnover, when u have money come in then u will feel rich and then you will spend when the speed increase then you will feel good. This had help to stop the vicious cycle and clear the overhand which helps to start the positive cycle. Hence this is the 1st benefit of having tax holiday.
So what’s the 2nd benefit?
According to our LHDN, RM44b revenue were generated from GST in year 2017.
Assuming that the revenue were generated equally in each month, hence RM44b divide by 12 = RM3.67b.
This mean that if the government stop collecting GST for 1 month, then there will be RM3.67b remain in the pocket of consumer. If 2 months then it would be RM7.33b, and if 3 months then it would be around RM11b.
On the other hand, Tun Daim also mentioned that the government expect that they will collect RM30b from SST annually. This would work out to be RM2.5b every month.
Assuming that we have a tax holiday for 3 months which will last until end of August and SST will start on September. As a result of lower tax collection from SST compare to GST, this mean that RM1.17b per month will be in the pocket of consumer, and this will be the same for that 4 months. As a result, RM1.17b*4= RM4.68b
The tax not collected of RM11b and RM4.68b adds up to RM15.68b. We understand that even though the consumer may necessarily spend all this RM15.68b, but it definitely create a situation where consumer feel that they spending lesser and have something left in their pocket compare to current situation.
This can also be called as ECONOMY STIMULATION or QE from the government! This can help to stimulate the internal demand of the country. On the other hand, the effect of this RM15.68b is even greater than RM15.68b, why? This is because of the multiplier effect!
Let’s get back to Economics 101
For those who studied Economics before, you will surely remember a formula of C+I+G+NX = GDP.
C = consumption
I = Investment
G= Government spending
Nx = Export – Import.
C = consumption
I = Investment
G= Government spending
Nx = Export – Import.
In our current situation, we saw that the Mega project will get review, let’s assume that it is on hold for review. This would mean a huge reduction in Government spending and this will affect the GDP Growth.
In order to reduce the impact of reducing government spending, what Tun Daim and his team did is to boost the consumption with that RM15.68b in order to lower the impact of Government spending. This shows that Tun Daim and his team are really good in Fiscal policy and they really know how to use this policy to boost the economy, no words but only respect to Tun and his team!
Other than GDP, what will get affected? As we mentioned above, we believe big ticket items that is subject to GST such as electronic goods, Car are likely to get cheaper and this could stimulate consumption. As a result, those counters that are selling these item could be the winner of this move, and consumer counters will be the beneficiary.
MAY ALL THE HUAT BE WITH US!
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