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Will These Singapore Shares Be Harmed By New Malaysian Taxes Next Year?


For those who have not heard, Malaysia is planning to implement a Goods and Services Tax (GST) in 2015. It is still unknown how the new tax would affect the different industries in Malaysia, but there might be a possibility that the country’s economy would hit a speed bump as it adjusts to the change.

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Given Singapore’s close economic and geographic ties with Malaysia, there are bound to be companies which might be impacted by the new GST. So, let’s take a closer look.

Is the tax a scary thing?

Here’s a question which might be in the minds of some of you readers: Why is GST to be feared? After all, Singapore has it for a long time now and our economy is doing just fine.

Turns out, there’s a key difference here. Malaysia wants to introduce a GST of 6% without really lowering the corporate tax structure in the country. Thus, the GST of 6% would most likely end up as an added cost for both consumers and businesses. As a result, for the short term at least, there might be inflationary pressures on businesses in the country.

It’s all about Malaysia

In Singapore’s share market, some companies with large exposure to Malaysia include Silverlake Axis Ltd (SGX: 5CP), Great Eastern Holding Limited (SGX: G07), and Courts Asia Ltd (SGX: RE2). How would a GST in Malaysia affect each of them?

Silverlake, a banking technological systems provider, mainly serves businesses that come from the financial sector in Malaysia. Its staff costs might be under pressure as employees demand higher pay due to inflationary pressure. But, Silverlake’s clients include most of the major banks in Malaysia where software systems are a critical part of their business and which do not prove to be a major cost. Therefore, there is a high chance that Silverlake is able to pass through any staff cost increase to its clients easily.

Similarly, the insurance outfit Great Eastern might be forced to endure higher staff costs for the same reason. However, the insurance business tends to be more price sensitive and thus there is a chance it might not be able to pass on any of its cost increases to its customers.

Courts Asia, as a retailer of IT products, household appliances, and furniture, might be the most vulnerable among the trio. Any goods it imports will be subjected to GST and on top of that, it has to implement the additional tax on the products it sells. Given that more than 70% of its sales in Malaysia are done through installment plans (i.e., the provision of credit to its customers), it might be safe to deduce that Courts Asia’s customer base is price sensitive. It’s interesting to note that Courts Asia also operates with the lowest margins among the three companies and it actually recorded a net margin of 2.6% in its latest quarter – any slight negative impact to its revenue from a decline in consumer demand might be greatly magnified in its bottom-line due to its high operating leverage.

Foolish Summary

No one knows for sure how the new GST is going to impact the Malaysian economy – we can only make educated guesses. Given that there seems to be more negative impacts stacked against Malaysian businesses from the implementation of the GST, any expectations of growth in the country’s economy might have to be tempered a little.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.