ACCCIM SURVEY REPORT ON ECONOMIC SITUATION OF MALAYSIA FOR THE 2 ND HALF OF 2013

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1 1. INTRODUCTION 1.1 THE PURPOSE OF THIS SURVEY In Malaysia, due to the wide participation of the Chinese businessmen in the economic activities throughout the country, Chinese's businessmen play an important role within the economy. A survey (part of an exercise carried out twice a year) has recently been carried out to gather feedback and opinions from Chinese businessmen. This survey can be viewed as a means to gauge the economic situation facing the Chinese business community in the 2 nd half of This survey covers four major areas in relation with the Chinese business community, namely: i. The Malaysian economic situation in the 2 nd half of 2013; ii. Major factors affecting business performance; iii. Malaysian economic outlook; and iv. Current issues facing the Chinese businessmen in relation to trade, investment and industrial development in Malaysia. 1.2 SIGNIFICANCE OF THE SURVEY Most of the data and statistics in relation to the economic situation available today are collected by the Government through Statistical Department of Bank Negara Malaysia and its agencies. The Malaysian Institute of Economic Research (MIER) has conducted surveys on the economic recovery in the past but has thus far, focused on the consumers and the manufacturing sector. Given that the Chinese business community plays an important role in the Malaysian economy, ACCCIM, as a national organisation representing the Chinese business community, take the task to assist the Government in gauging the economic situation facing the Chinese business community. It also attempts to collect feedback and opinion on various measures undertaken by the Government to enable them to evaluate the effectiveness of those measures. This would be helpful to the Government either in making adjustments to the existing policies or in the formulation of new policies. The results from the survey also provide a basis for ACCCIM to submit relevant memoranda to the Government and serve as a reference for the business community and foreign investors in formulating investment plan and strategy. 1

2 2. SURVEY METHODOLOGY The purpose of this survey was to collate information in relation to the economic situation facing the Chinese business community in the 2 nd half of The questionnaire was constructed based on the current economic issues faced by the country and the business community, and the various measures undertaken by the Government to address the issues concerned. ACCCIM represents around 30,000 Chinese businessmen and trade associations in Malaysia. As most of the prominent Chinese businessmen are the committee members of ACCCIM either at the national or state levels, these committee members could be taken to represent the Chinese business community. The total questionnaires sent out were 717. A total of 345 questionnaires was returned, making it a response rate of 48.12% of the total questionnaires sent. These 345 respondents made up the sample of this survey. The 48.12% response rate was reasonable, as other surveys conducted by other organisations have also experienced low response rates. The questionnaires were distributed to Chinese's businessmen across all sectors and industries. In terms of breakdown of distribution, the respondents were mainly from wholesale and retail (24.9%), manufacturing (18.3%), professional and business services (15.4%), construction (10.7%), real estate (5.8%), finance and insurance (5.2%), and tourism, shopping, hotels, restaurants, recreation and entertainment (5.2%) as well as others (14.5%). These sectors concerned are said to represent the major sectors of the economy. The breakdown of responses may be depicted as follows: Sector Percentage Wholesale & retail trade 24.9 Manufacturing 18.3 Professional & business services 15.4 Construction 10.7 Real estate 5.8 Finance and insurance 5.2 Tourism, shopping, hotels, restaurants, recreation and entertainment 5.2 Others (Sample Size) (345) 2

3 About 21% of the respondents were from Non-SMEs (according to annual turnover and full time employees) SME vs Non-SME The National SME Development Council has provided a definition for small and medium enterprises with regard to manufacturing (including agro-based) & manufacturing related services, primary agriculture and service's sector (including information and communications technology, ICT), as described below. Primary Agriculture A small and medium enterprise in primary agriculture is an enterprise with fulltime employees not exceeding 50 or annual sales turnover not exceeding Ringgit Malaysia (RM) 5 million. The agriculture, forestry & fishery sectors have been classified in this category in this report. Manufacturing (including Agro-Based) and Manufacturing-Related Services (MRS) A small and medium enterprise in manufacturing (including agro-based) and MRS is an enterprise with full-time employees not exceeding 150 or with the annual sales turnover not exceeding RM 25 million. 3

4 The manufacturing, mining and construction sectors have been classified in this category in this report. Services Sector (including information and communications technology, ICT) A small and medium enterprise in services is an enterprise with full-time employees not exceeding 50 or annual sales turnover not exceeding RM 5 million. The real estate, transportation, forwarding and warehousing, telecommunications, information technology, wholesale and retail trade, international trade, tourism, hotels, restaurants, recreation and entertainment, finance and insurance, professional and business services have been classified under this category in this report. For the manufacturing based business, 61.6% of the respondents employed 50 employees or less, with another 28.3% employing employees, whereas 10.0% of the respondents claimed that they employed more than 150 employees. For the services based businesses, 61.7% of the respondents employed less than 20 employees and 25.4% employing employees. On the other hand, about 12.9% of the respondents claimed that they employed more than 50 employees. Full-Time Employees Manufacturing Services Number of employees Percentage Number of employees Percentage Less than Less than ~ ~ ~ ~ ~ ~ More than More than (Sample Size).0 (120) (Sample Size).0 (225) In the case of turnover achieved annually, for the manufacturing based businesses, about 33.3% of the respondents reported that their companies annual turnover exceeded RM10 million. About 15.8% of the 4

5 companies surveyed reported having an annual turnover that exceeded RM25 million. For the services based businesses, about 36.4% of the respondents had an annual turnover of between RM1.0 million to RM5.0 million. Additionally, about 17.8% of the companies had an annual turnover of more than RM5 million. Annual Turnover Manufacturing Services in Ringgit Malaysia Percentage in Ringgit Malaysia Percentage Less than 250, Less than 200, ,000 ~ 999, ,000 ~ 999, ,000,000 ~ 4,999, ,000,000 ~ 2,499, ,000,000 ~ 9,999, ,500,000 ~ 5,000, ,000,000 25,000, More than 5 million 17.8 More than 25 million 15.8 (Sample Size).0 (120) (Sample Size).0 (225) About 82.9% of the respondents were domestic market oriented whereas the remaining 17.0% focused on both domestic and export markets (10.1%) or export markets (7.0%). Export market 7% Both domestic and export markets 10% Domestic market 83% 5

6 3. SURVEY FINDINGS 3.1 THE MALAYSIAN ECONOMIC SITUATION IN THE 2 ND HALF OF Sales performance Slight Deterioration in Sales Performance Based on the survey results, the majority of the respondents (about 78%) replied that their firms sales performances were either good or satisfactory. This represents a slight drop in 4% points of respondents in the good or satisfactory categories when compared with the period in 1 st half of 2013 where 82% of respondents reported similar outcomes. Unfortunately, it also represents a second consecutive period of deterioration in sales performance. In the last survey, there was a reported drop of 3% points and in this survey, there was drop of 4% points. In the case of the manufacturing sector, there was a slight increase in the poor sales category, as the operating environment could have turned more challenging. For the wholesale and retail sector, the sales performance of the majority of the survey respondents were scaled towards satisfactory. On the whole, the sales performance of the majority of the survey respondents deteriorated despite an improvement of economic growth in the second half of This could be dampened by a fuel price hike in September. Also, the Malaysian economy remained not robust, although growth improved from +4.3% in the 1H to 5.1% in 2H of the year. The improvement was mainly supported by resilient domestic demand (in particular the private sector) and improved export performance. In the case of future sales outlook, the majority of the respondents (64%) believe that the good and satisfactory sales levels experienced in the second half of 2013 would continue into the 6-months period of 1 st half of

7 However, it is noted that there was a drop of 12% points in respect of percentage of respondents in the optimistic category (good and satisfactory) of future sales. This may be an indicator that business are beginning to express their somewhat cautious outlook in respect of their firms future business prospects, on the back of rising costs of doing business. Sales Performance Sales Performance 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd 13 1 st 14 (Forecast) Good Satisfactory Poor (Sample Size) (80) (128) (58) (86) (392) (302) (283) 7

8 3.1.2 Production volumes Slight Improvement in Production Volumes Production volumes improved slightly over the period of survey. During the 2 nd half of 2013, it was noted that 14 (1 st half 2013: 10%) of respondents reported increased productions volumes while another 63% (1 st half 2013: 63%) saw no change in the production volumes of their businesses. Notwithstanding the earlier finding that there were slightly more businesses expressing forecast decrease in future sales performance, the majority of businesses still appear upbeat, with 21% of respondents expect production volumes to increase for the 1 st half of 2014, while 23% of respondents believing that their production volume would experience a reduction in the future period. Production volume Production volume 1 st Half nd Half 2013 Mfg Mfg 1 st 13 2 nd 13 1 st 14 (Forecast) Increased Remained unchanged Decreased (Sample Size) (72) (54) (232) (95) (86) 8

9 3.1.3 Stocks Inventory Levels Unchanged 84% of the respondents reported that their stock levels were largely in the increased and remained unchanged categories for the 2 nd half of 2013 surveyed (this is slight decrease when compared to the result reported in 1 st half 2013: 85%). Changes were noted in the categories of stock changes when response patterns were analysed in the manufacturing and wholesale and retailers sectors. As noted in previous surveys, the majority of the respondents in these two sectors reported unchanged inventory levels. For the manufacturing sector, there was a significant surge of 18% points in respondents reporting increased inventory levels. This was mainly due to a significant drop of 14% points of respondents that experienced unchanged inventory levels. This may be an indication of inventory build up in the manufacturing sector as sales deteriorated. On the other hand, the wholesale and retailers had a reverse pattern, where there was a drop in the respect of % of respondents reporting increased inventory levels (a drop of 8% points over the last survey period), which was translated into a similar change in the decreased inventory level category. Going forward for the next six months in 1 st half of 2014, 12% of respondents expect to increase the level of inventories while another 65% of respondents anticipate to hold lower level of inventories. On the other hand, 23% expect to cut their inventory given the more challenging environment. Stocks Stocks 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd 13 1 st 14 (Forecast) Increased Remained unchanged Decreased (Sample Size) (73) (84) (54) (56) (231) (158) (149) 9

10 3.1.4 Collections Unchanged Pattern of Collections from Customers The pattern of responses in respect of collections from customers for the period of 2 nd half of 2013 was almost identical to that for the 1 st half of Once again, the majority (66%) of the respondents reported satisfactory collections from customers and 23% of respondents reported having experienced poor collections, a slight pick-up from 22%. However, when analysed between the different sectors, it was noted that businesses in the manufacturing sector experienced a somewhat reversal of collection experience in this period of survey relative to the previous one. There was a drop of 11% points in respect of respondents reporting poor collections. This change reflected improved collection experience by businesses in the manufacturing sector where there were increases of 8% and 3% points in the categories of good and satisfactory collections respectively. Unfortunately, the same trend was not seen in the wholesale and retail sector, where there was a drop of 8% points in respect of respondents experiencing good collections from customers. There was also an increase of 7% points in respect of businesses reporting poor collections. Forecasting into the future, some 11% of respondents believed that their collections would be good, while 36% of respondents were concerned that their collections would be poor in view of rising costs of doing business. Of concern perhaps is the continued increase in the % of respondents that forecast poor collections in the future. Businesses are advised to be cautious and to step up efforts to better control their collections so as not to run into cash flow problems in the future. Collection for Payment of Debt Collection for Payment of Debts 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd 13 1 st 14 (Forecast) Good Satisfactory Poor (Sample Size) (75) (127) (54) (66) (369) (283) (269) 10

11 3.1.5 New orders from overseas market Slight Improvement in New Orders from Overseas Markets There was also no major change in respect of the pattern of responses for new orders from overseas markets. There was a slight increase in the increased orders category by 3% points. It may be surmised that new orders from foreign markets continue to remain strong, in line with an improvement in global economic prospects. In the manufacturing sector, there were fewer respondents who reported unchanged and decreased new orders from foreign markets (drop of 14% and 3% points respectively). Both these changes gave rise to the significant upsurge in respect of businesses receiving increased new orders from foreign markets by 17% points. In the case of wholesale and retail sector, the level of new orders continue to remain sustained as there was a 10% points increase in the number of respondents that reported unchanged new orders from overseas markets (with the change mainly coming from the increased category). Overall, majority of the respondents (66% of respondents) were still hopeful that for the next six-months ending June 2014, their businesses would experience increased and unchanged levels of orders from foreign markets. Sentiment wise, this was a drop of 5% points overall relative to what was reported in the last survey period and may reflect lower confidence in respect of orders from foreign markets. Businesses would have to work harder to secure greater orders from foreign markets. New Orders of Goods and Services from Foreign Markets New Orders 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd 13 1 st 14 (Forecast) Increased Remained unchanged Decreased (Sample Size) (44) (38) (44) (21) (146) (123) (111) 11

12 3.1.6 New orders from local market New Local Orders Show Significant Drop This period of survey showed mixed fortunes for businesses in respect new orders from local markets. Overall, fewer % of respondents responded unchanged level of new local orders. However, this was mainly due to more businesses that reported having experienced decreased local orders (an increase of 12% points over the last survey period). In the case of increased local orders, the % of respondents that reported being in this category only increased by 3% points. This may be taken as a case of internal demand for the products / services of the businesses concerned as having decreased, in line with a more moderate growth in domestic demand. The overall change as noted in the paragraph above was also seen in the manufacturing sector. Here, there was an increase of 13% points of respondents that reported decreased new local orders, while at the same time, there was an increase of 8% of respondents that reported increased local orders. In the case of the wholesale and retail sectors, the majority of the respondents concerned did not experience significant change in the levels of new local orders. Fewer % of respondents reported increased new local orders. In the case of future performance in the next six months ending June 2014, some 38% of the respondents forecast that their businesses are expected to experience decreased new local orders. The reading is a concern and the Government should take this as an indication of a drop in the level of confidence of businesses with regards to prospects of the Malaysian economy. New Local Orders of Goods and Services from Local Market New Local Orders 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd 13 1 st 14 (Forecast) Increased Remained unchanged Decreased (Sample Size) (78) (126) (50) (75) (369) (281) (255) 12

13 3.1.7 Sales prices More businesses have had to reduce their Local Sales Prices Overall, businesses were still able to sustain their local sales prices for the 2 nd half 2013 period. However, it is noted that the pattern of results for the period under review represents a slight deterioration relative to that reported for 1 st half of For the second consecutive period of survey, there were more businesses that reported the need to reduce sales prices (an increase of 7% points over the previous survey period). During the last survey period, it was reported that there was a 5% points increase in respect of respondents that had reduced their selling prices. There was an 8% points drop in the percentage of respondents that reported being able to keep their selling prices unchanged. Looking into the future, some 35% of the respondents forecast the need to reduce their selling prices of the goods and services to stay in business for the forecast 6 months forward for the 1 st half of This represents an increase of 16% of the percentage of respondents that had similarly forecast such need for the corresponding 6 months future period. Additionally, some 14% of businesses were confident that they could increase their selling prices for the same forecast period. Based on the comments made in the earlier paragraphs, it was noted that businesses in the manufacturing sector saw an increase of 10% points in respect of respondents advising of their need to lower their selling prices. They may have been forced to do so as they sought to support their sales level. In the case of businesses in the wholesale and retail sector, a similar pattern was noted whereby there was an increase of 15% points in respect of respondents claiming that they have had to reduce their selling prices. 13

14 The overall results reflect the continued significant challenges that businesses faced, with more businesses having to reduce prices in order to sustain their sales performance. Local Sales Prices of Goods and Services Local Sales Prices 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd 13 1 st 14 (Forecast) Increased Remained unchanged Decreased (Sample Size) (69) (92) (52) (69) (290) (263) (250) 14

15 3.1.8 Number of employees Employment Market Relatively Unchanged The employment market showed a relatively unchanged position with no major swings in the percentage respondents for all categories of responses. There was a slight increase in the overall of % of respondents who reported having reduced the number of employees in their businesses. In the case of the manufacturing sector, there was a slight improvement in the state of employment where there was a slight improvement in the % of businesses reporting increased and unchanged number of employees in their businesses. For the wholesale and retail trade sector, firms mainly kept their number of employees unchanged. Overall, the majority of businesses are expected to maintain their capacity level in terms of human resource requirements for the next 6 months ending June Number of Employees Number of Employees 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd 13 1 st 14 (Forecast) Increased Remained unchanged Decreased (Sample Size) (74) (127) (57) (71) (372) (293) (277) 15

16 3.1.9 Wage cost per unit of output Wage Costs Per Unit of Output Increased Slightly Businesses advised that the wage cost per unit of output for the whole of 2 nd half of 2013 largely remained constant, with slightly more respondents claiming to have experienced increase in wage costs per unit of output (increase of 6% points in the increased category of wage costs category). This may be taken as an indicator that businesses had strived hard to keep wage costs per unit of goods and services constant. A total of 67% of responses indicated that their wage costs remained unchanged in 2 nd half of 2013 compared 74% recorded in the 1 st half of In the main, it may have been due to the implementation of the Minimum Wage requirement in Malaysia and ahead of the rollout for smaller companies on 1 January It may be surmised that the biggest sector affected by wage costs increase was the manufacturing sector. There was an increase of 18% points of respondents reporting experiencing having had to increase the wage costs per unit of output in their firms. There was the corresponding decrease in % responses in the categories of unchanged and reduced wage costs. In contrast, there was an increase of 9% points in respect of businesses in the wholesale and retail trade sector that reported having been able to reduce their wage costs per unit of goods and services. Looking into six months ahead, some 59% of the respondents believed that wage costs would remain unchanged for the period of 1 st half However, there were 18% of respondents who felt that wage costs would increase in the same period. Wage Costs per Unit of Goods and Services Wage Costs per unit 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd 13 1 st 14 (Forecast) Increased Remained unchanged Decreased (Sample Size) (74) (124) (54) (67) (366) (272) (249) 16

17 Capacity utilisation Significant Drop in Capacity Utilization Worryingly, only some 41% of respondents claimed that their businesses were operating at more than 60% capacity in the 2 nd half of This represents a significant drop from 63% of respondents who had opined similar results in the last survey period of 1 st half As noted in previous surveys, the capacity utilisation rate continues to be well below the desired level of more than 80%. As noted in the previous surveys, there exist businesses that operated at low capacity levels with many more respondents claiming to be operating at less than 40% capacity. For this category, some 39% of respondents fell into this category which is in sharp contrast of 9% of respondents who reported falling into the same category in the last survey. The Government should give serious look into assisting the SMEs in particular to help such businesses improve on their capacity utilisation as in the long run, such operations would have to close down if under utilisation of business capacity continues. At the individual business level, to reduce the excess capacity, greater efforts should be placed by the businesses into areas such as marketing and promotional exercises, introduction of new products and more innovative business measures to increase sales. Capacity Utilisation Level Capacity Utilisation Level 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd ~ % ~ 80% ~ 60% ~ 40% (Sample Size) (80) (128) (63) (86) (392) (345) 17

18 Investment in new resources or plant More Respondents Choosing to Reduce Investments in New Resources or Plant In line with the low capacity utilisation noted earlier, it is not surprising therefore to note that 91% of the respondents replied that they were keeping their investments in new resources or plant either unchanged or decreased. Once again, perhaps worryingly, more respondents have chosen the decreased category (increase of 15% points for this period over the last survey period). There was a 10% points increase in the % of respondents in the manufacturing sector that had chosen to reduce their investment levels. Consistent with the earlier paragraphs, this may be due to reduction in new orders, from local markets. Furthermore, as noted in the earlier paragraph, there continues to be sufficient capacities to absorb new orders. Moving forward, some 50% respondents stated that they are considering reducing their investment in new resources or plant for the period 1 st half This is mainly due to the significant excess capacity and rising costs of doing business. Only 12% of respondents advised that they planned to increase such investments during the period of 1 st half Investment in New Resources or Plant Investment 1 st Half nd Half 2013 Mfg WRT Mfg WRT 1 st 13 2 nd 13 1 st 14 (Forecast) Increased Remained unchanged Decreased (Sample Size) (73) (119) (50) (57) (351) (231) (220) 18

19 Economic Situation in Malaysia The Malaysian economy was seen to have experienced little growth in the 2 st half of 2013 At the macro level, some 44% of respondents had the perception that the Malaysian economy remained relatively stable in the 2 nd half of The percentage of respondents under this category of response decreased by 5% points from a level of 49% for the last survey period. The change noted in the earlier paragraph was more than matched by an increase of 10% points in respect of respondents in the deteriorated response category (2 nd half 2013: 45%; 1 st half of 2013: 35%; 2 nd half of 2012: 30%). This shows that there continues to be the increasing perception among businesses that there was some weakening in the growth rate of the Malaysian economy in the various half yearly periods, starting from 2012 till end Certainly, Malaysian businesses wish to see more robust economic growth. Whilst the figures released by Bank Negara Malaysia depict higher economic growth and performance for Malaysia as a whole, in particular for the 2 nd half of 2013, such growth appears not to have filtered down to the businesses, especially at the SMEs level. Not surprising, as they experienced deterioration sales and a drop in new orders, while costs of doing business are rising. 19

20 3.2 MAJOR FACTORS ADVERSELY AFFECTING BUSINESS PERFORMANCE Government policies For the period six months ended December 2013, the greatest concern among businesses was the need for friendly government policies that promote and support businesses activities. Some 52% of the respondents cited Government policies as the most important factor affecting the performance of their businesses during this period of survey. This could be due to rising costs of doing business, after the implementation of the minimum wage policy in the beginning of the year, followed by fuel prices hike in September and the announcement of a power tariff hike in late December. As noted in the past, Malaysian businesses continue to look towards the Government to introduce and implement economic policies that are business friendly, improve efforts to increase speed and efficiency of Government / regulatory related processes and in turn, reduce cost of doing businesses. The Government is also looked upon to implement efficient public projects and pump in greater expenditure that can spur greater economic growth. This is gaining greater importance given the continued weak external economic environment, uneven economic growth in advanced countries and concerns about the sustainability of the world economies in the near term. The business community sees the implementation of business friendly policies as imperative and necessary to boost private investment and spur the Malaysian economy. It should also be noted that despite efforts to transform the Malaysian 20

21 economy, the effects and benefits continue not to appear to have filtered down meaningfully and significantly to the SMEs. Businesses have also expressed concern about new rules that have been implemented such as the minimum wage policy, the extension of retirement age, increased EPF contributions, the impending increase in bank charges for the use of cheques for payments, to cite a few, leading to an increase in the cost of doing businesses. Increase in operating cost and price of raw materials Increase in operating costs and prices of raw materials have now become the second most important concern among businesses (up from fourth most important factor in the last survey period). The rising operating costs experienced by businesses stems from areas such as the 1% point increase in EPF contribution (for workers who earned RM5,000 and below), the implementation of the Competition Act 2010, the implementation of the minimum wage and the increase in costs of utilities and fuel prices (there was the cut in petrol subsidies in September 2013, causing petrol prices to rise 10.5%, whilst electricity tariffs rose by up to 15% effective 1 January There was also the added pressure given the mandatory extension of retirement age to 60 for the private sector and the follow-on unchanged EPF contribution rates by employers until the age of 60. There continues to exist fluctuations in prices of raw materials, which in turn have had some impact on businesses operating costs. The situation was compounded by a weaker ringgit. Further more, the low capacity utilisation might have contributed to higher costs per unit of output, for a given fixed operating costs. Domestic competition Consistent with previous survey results, there continues to be concern by businesses with regards to domestic competition among respondents. For this period of survey at 37%, it was ranked as the third most important factor affecting business performance. As noted in the past, business challenges have continued to increase and have forced the SMEs to compete with each other more fiercely. Also, given that more businesses continue to be set up and this pressure has intensified due to the adverse effects of the weak global economy. This also explains why respondents continue to perceive that the Malaysian economy did not experience a robust economic growth in the period under review. 21

22 Manpower shortage Concern was expressed by the respondents in respect of this factor with close to 32% of respondents feeling this an important factor during the 2 nd half of 2013 s survey. Businesses and employers in Malaysia have long complained of shortage of suitably qualified workers and the problem of supply of foreign workers as well as lack of job-fit and job-readiness Malaysians (in particular, job readiness and employable graduates) that are likely to have impacts on their businesses. Overall, government policies, increase in operating costs and price of raw materials, increase in domestic competition and manpower shortage were the four (4) major factors that affected the business performances in the 2 nd half of

23 3.3 MALAYSIAN ECONOMIC OUTLOOK The Chinese business community is generally pessimistic about the economic outlook for 2014 and There appears to be a significant change in perceptions by the business community surrounding the future economic outlook of Malaysia. About 64% of the respondents expressed that they were pessimistic about the performance of the Malaysian economy for This represents a significant increase in respect of the level of pessimisms as in the last survey performed, some 43% of respondents chose this category of response. The significant change may be due to factors discussed earlier (such as poorer sales, lack of improvement in terms of collections from customers, decrease in new orders from local markets and deterioration in sales prices). The majority of the respondents (60%) believe that the Malaysian economy is expected to struggle going into 2015 and perhaps, is only likely to perform better in Overall, the Chinese business community is generally pessimistic about the economic outlook for Malaysia for 2014 and 2015 but are looking towards an improvement in

24 3.4 REAL PROPERTY GAINS TAX (RPGT) (a) Budget 2014 saw significant changes in increase in tax rates under Real Property Gains Tax (RPGT) for disposals of real properties. In particular, for Malaysian citizens, the RPGT rate for disposal of properties within three years of acquisition would be 30%. Further, for disposals within the holding period of up to four and five years, the RPGT rate would be 20% and 15% each. Do you think this change is sufficient to curb speculative activities in the property sector? In Budget 2013, it was announced by the Government that with effect from 1 January 2013, the RPGT rates for the disposal of real property and shares in real property companies were as follows: Disposal period (from acquisition date) Companies RPGT rates Individual (citizen / PR) Individual (non citizen / PR) Within 2 years 15% 15% 15% Between 3rd and 5th year 10% 10% 10% After 5th year 0% 0% 0% 24

25 In Budget 2014, in answering to calls by certain segments of the public to curb speculation in real estate and other properties, the RPGT rates were further revised for the disposal of real property and shares in real property as follows: Disposal period (from acquisition date) Companies RPGT rates Individual (citizen / PR) Individual (non citizen / PR) Within 3 years 30% 30% 30% In the 4th year 20% 20% 30% In the 5th year 15% 15% 30% After 5th year 5% 0% 5% Based on the survey results, 47% of the respondents believed that the increase in the RPGT rates is likely to yield positive results in the property sector, in particular for those seeking to see a cooling of the property sector where many have viewed that the prices of properties have sky-rocketed to the extent of being beyond the means of the average persons on the street. Many people have claimed that speculation is the main cause in the price hike of properties, especially in the case of residential properties. Even the National House Buyers Association had also previously commented that if it was not due to speculation, more people would be able to afford to buy houses. In turn, the relatively low RPGT rates in previous years were pin pointed to be one of the main causes which has fuelled false demand excessive speculation. Thus, the Government, having heard out the grouses of the man in the street, had progressively taken various steps to attempt to cool-off the price hikes in the property sector and one of the measures described has been the rise in RPGT rates. Of interest to readers would be that some 21% of the respondents believed that in spite of the increase in the RPGT rates, property 25

26 values are still expected to rise. The inflationary push in the property prices was predicted to be more than outweighed possible reversal effects arising from change in RPGT rates. Arguments put forth for this include factors such as increase in raw material prices (prices on marbles, tiles and aluminum-based components and the import of cranes and trucks), effects of increase in fuel prices and electricity tariff hikes and so on. Some 32% of the respondents were of the opinion that the increase in the RPGT rates as provided for in Budget 2014 were too steep and would have negative effects on the property sector. The Malaysian economy is said to still quite reliant on the contributions by the property construction sector and any attempt to curb the attractiveness of investing in the property sector would likely bring negative to the property sector and in turn, to the Malaysian economy. (b) Additional changes include revisions made to the RPGT rates for disposal of properties by non-citizens and companies, the increase of the minimum price of property that may be purchased by foreigners to RM 1 million and the prohibition of developers from implementing new projects with Developer Interest Bearing Scheme (DIBS) feature. Given the proposed changes, do you think it will affect foreign interest in Malaysia property? 26

27 In addition to the change in RPGT rates as mentioned in paragraph 3.4 above, Budget 2014 also introduced other changes as the Government sought different measures to ensure that properties (in particular, residential properties) remained affordable for the people. Such measures included the following: a) PR1MA commitment under the scheme to build 80,000 homes b) MyHome provision of subsidies of up to RM30,000 to developers to construct low and medium-cost homes c) RPGT increase in RPGT rates for disposal of properties by non-citizens and corporate. For details of change in RPGT rates, please refer to the tables as contained in paragraph 3.4 above d) Minimum purchase price for foreigners Budget 2014 has limited the purchases of properties by foreigners in Malaysia to a minimum of RM1 million in value e) Developer interest bearing scheme (DIBS) stopping the issuance of home loans for acquisition of properties under DIBS Much has been discussed in the earlier paragraphs about the concern of the people, in particular of the fact that property prices have risen significantly in Malaysia over the last few years, with price speculation by foreign buyers as being one of the chief reasons. Attempts to target the effects of speculation by foreign buyers of properties in Malaysia mainly rest with efforts such as those listed under c) to e) above. Based on the survey findings, it is noted that a large majority (72%) of respondents believe that such efforts by the Government is very likely to negatively affect foreign buyers interest in the Malaysian property market. Property developers in the low end markets would now compete and attempt to provide better offerings for Malaysian as opposed to attempts to cater to foreign buyers (as they had done in the past). 27

28 3.5 GOODS AND SERVICES TAX (GST) GST RATE (a) The Malaysain Government has formally announced that the Goods & Services Tax (GST) would come into force effective 1 April 2015 and that the GST rate would be 6%. Do you think that this rate is too high? On 25 October 2013, the Prime Minister of Malaysia announced the introduction of Goods and Services Tax (GST) in Malaysia and the proposed abolition of the Sales and Services Tax during the reading of Budget GST has been slated to be effective from 1 April 2015 at a rate of 6%. Many reasons have been put forth as to the benefits of GST by the Government, as justification for its decision to implement GST. It has been stated that GST can benefit consumers and businesses in the following manner: Improved Standard of Living Lower Cost of Doing Business Nation-Building Fairness and Equality Enhanced Delivery System Increase Global Competitiveness Enhanced Compliance Reduces Red Tape Fair Pricing to Consumers Greater Transparency Given the many efforts by the Government, in particular through announcements by the Ministry of Finance and the press publications, to increase awareness of GST, many businesses have grown to accept the inevitability of the impending implementation of GST. 28

29 The businesses however are still of the opinion the starting rate of 6% is too high (an almost unanimous response by the businesses). (b) If you think that the proposed GST rate is too high, what GST rate would you suggest? GST Do you think 6% is too high? Suggest No Yes 0% % % % % More than 5% The recommended starting GST rate was either: a) 3% - recommended by 41% of respondents or b) 4% - recommended by 31% of respondents The Government is recommended to pay heed to the rate as mentioned by businesses community. 29

30 3.5.2 OPERATIONAL ISSUES FOR GST Respondents were asked about various operational issues as they build up towards the impending deadline for implementation of GST. A summary of the main findings are tabulated as follows: GST Issues % (c) Do you understand the workings of the GST system? 53.0 (d) (f) Are you prepared to send your staff to attend courses to get familiar with GST system? Are you aware that registration for GST by businesses would be open starting October 2014 and may be done on-line via official website of Malaysia GST, Royal Malaysian Customs Department? (g) Will the impending implementation of GST lead to increase in cost? 85.0 A commendable effort by the Government has been the continuous attempts to provide better information about GST to members of the public and businesses. For example: a) Setting of web-site, i.e. Malaysia Goods and Services Tax, under the purview of the Royal Malaysian Customs Department (RMCD) b) Conduct of GST Awareness Talk and Seminars by MOF / RMCD c) Dialogue between RMCD and businesses and so on Such efforts appear to be paying off as: a) The majority of respondents now claim to have some understanding of how GST works. b) Majority of businesses were prepared to send their staff to attend courses to better understand the GST. This is very important as firms must be properly prepared for the implementation of GST. 30

31 c) Registration for GST is important, in particular the deadline for registration. Again, it is heartening to note that the majority of businesses are aware of the deadline set for Businesses should not wait till 1 April 2015 to register. In fact, the Government has attempted to facilitate businesses in this respect and has even created the Taxpayer Access Point (TAP) mechanism on its GST website (inclusive of registration). Nonetheless, the concerns that the implementation of GST would lead to increases in costs, whether for businesses and/or consumers, continue to linger. This concern was echoed by some 85% of respondents. The Government should assist businesses to have a better control on costs and prices and this should not be restricted to the passing of price control regulations. The Government should look into the various problems and difficulties that are likely to be faced by businesses (especially the SMEs) as compliance costs are likely to rise. (e) What learning period should be provided to the firms before any punitive action is taken in relation to compliance of GST requirements? Businesses are also requesting the Government to allow for an adequate period of learning as they attempt to prepare their businesses (systems, staff and other resources) to meet the requirements of GST. Punitive action for the lack of compliance of GST requirements should only take place after the expiry of the learning period that is hoped to be granted to businesses. 31

32 49% of the respondents felt that a minimum learning period of one (1) year should be granted with another 40% of respondents believing that the learning period should be up to two (2) years. 3.6 INCREASE IN COSTS (a) 2013 saw several rounds of price subsidy cuts. Fuel subsidies were cut, resulting in petrol prices rising from RM1.90 to RM2.10 per litre. Subsequently, the lifting of subsidies for sugar led to price if sugar rising to RM2.80 per kg. How has this affected your firm? Much has been said by many stakeholders concerning the increase in costs, in particular in itself saw several rounds of price subsidy cuts. For example, fuel subsidies were cut, resulting in the price of petrol (for RON 95) rising from RM1.90 to RM2.10 per litre. Then, there was an announcement of a rise in electricity tariffs by up to 15% in Peninsula Malaysia and up to 17% for Sabah and Labuan (Sarawak was not affected). For the man in the street, there was also the lifting of subsidies for sugar which led to the price of sugar rising to RM2.80 per kg from RM2.50 per kg. The above has not been helped by the introduction by other legislations and requirements before this. For example, the introduction of Minimum Wage requirement, increase in EPF (rates and period of contribution), extending the retirement wage from 55 to 60 years and so on. 32

33 Certainly, the business community is crying out for understanding and help from the Government as the majority of respondents (87%) claim that their businesses are finding it increasingly difficult to cope and survive, especially given that the business environment itself has become more competitive and challenging. As commented in the survey report earlier, one of the key concerns of businesses has been the policies announced and implemented by the Government. Businesses continue to look towards the Government for more business friendly policies, which may be particularly true for the SMEs that the Government themselves view as being a very important component of the Malaysian economy since SMEs make up a significant percentage of businesses in Malaysia. (b) Are you able to pass on the increasing costs to the consumers? When respondents were asked about the ability of their businesses to pass on the rising costs to the consumers, some 60% of the respondents claimed to be able to do so. It is therefore very likely that the prices of goods and services for consumers would rise, thus contributing to the inflationary pressure in Malaysia. Consumers often complain that the inflation rate in Malaysia ought to be higher than the official figures as released by the official channels in Malaysia. 33

34 Alarmingly however, is the fact that some 40% of businesses claim that they would not be able to pass on costs increases to consumers and it is this group of businesses who s future may be seen as being somewhat uncertain, and thus, would require assistance from the Government. 34