KUALA LUMPUR, July 18 — Malaysia's retail industry is expected to achieve a higher growth of 5.3 per cent for this year versus the 4.7 per cent initially predicted, as Malaysians take advantage of a rare three-month tax holiday where no government tax on goods and services are collected.

Retail Group Malaysia (RGM) managing director Tan Hai Hsin, who bases his reports on surveys among the Malaysia Retailers Association, said the adjusted forecast is based on changes in spending patterns during the period when no Goods and Services Tax (GST) is collected.

"Based on the latest quarterly adjustments, the projected retail sale growth rate of Malaysia retail industry in 2018 by Retail Group Malaysia has been revised upwards from 4.7 per cent (estimate in March 2018) to 5.3 per cent,” he said in his June report.

The government's zero-rating of GST from June 1 to August 31 means no GST will be collected, while the government's plans to only bring back the Sales and Services Tax (SST) on September 1 to replace the GST means that there will be a three-month tax break.

Tan told Malay Mail that June's overall retail sales were pushed up by the zero GST, Father's Day, school holidays, the Hari Raya festival and the accompanying Raya bonuses, as well as the World Cup.

In his June report, Tan said RGM has revised retail growth in 2018's second quarter (April-June) upwards from the initial 3.7 per cent estimate to 6.3 per cent, noting that this takes into account the tax holiday for the entire month of June as well as the mid-June Hari Raya festivities.

"Many retailers, large and small throughout the country, have taken this once-in-a-lifetime opportunity to offer great discounts to attract shoppers to buy. Higher expenditure from tourists, including Singaporeans, is also expected during this period,” he said in the report.

In the same report on the local retail industry, Tan also forecasted an improved retail sale growth rate for the third quarter 2018 (July-September) from the initial estimated 5.2 per cent to 6.8 per cent, given the last two months of the tax break for July and August before SST's return.

Tan told Malay Mail that retailers of high-value retail goods will in July and August continue to enjoy good business, just like in June. This category of goods include cars, luxury items, electrical goods, electronics goods, gadgets and furniture.

"More retailers are able to offer cheaper goods and services after they settled all the administrative works.

"Retailers are expected to offer aggressive discounts and offers to get consumers to spend more,” he said of the July and August period.

As for the final quarter of 2018, Tan revised estimates of the expected retail growth rate from 5 per cent to 3.5 per cent.

"This lower adjustment is needed to reflect higher consumers' spending during the three-month period with zero-rated GST.

"Major purchases are expected to have been made from June to August of this year," he said of the final quarter.

Tan said inflation rate in June is expected to drop slightly, with July's inflation rate expected to fall just slightly below June's level. He added that August's inflation rate is expected to be the same as July's.

Spending pick-up

HC Chan, advisor of Malaysia Shopping Malls Association, said the increased retail sales for June was predominantly driven by the Raya festive period and a release of pent-up demand from consumers that had kept a "wait and see” before the May election, apart from the zero GST.

"The industry will see sustained interest and buying as we move into July and August but the degree will vary,” he told Malay Mail when contacted.

As for the remaining two months of tax holiday in July and August, Chan said: "We foresee moderation in July in absence of fresh catalysts. And that uptick will commence again in August and picking (up) again in the second half.”

"Until clearer policy is derived with the upcoming implementation of SST tax regime in terms of its coverage and tax rate, consumers are keeping to buy before 1 September,” he said.

Chan said that the zero GST is "not the primary factor” for higher retail sales as it is a combination of various factors such as a relatively lower inflation range this year as compared to last year, also noting that the current growth momentum for the retail sector is "especially fragile and can be derailed.”

Chan noted factors that may derail the retail growth momentum as including potentially higher prices owing to greater import costs with a weaker ringgit, as well as businesses passing on costs with the electricity tariff hike for commercial customers from July onwards, and fears of an escalating trade war between US and China and Europe which could erase the improved consumer sentiments.

"Things are still very volatile as we head off to the 2H2018,” he said of the second half of this year.