KUALA LUMPUR: The two percentage point increase in service tax announced for 2024 is expected to raise annual consumer price index (CPI) by 10 basis points (bp) for 2024.
"Our calculations show that items affected by the service tax increase form seven per cent of total CPI weight, considering the numerous exclusions such as food services and telecommunications. As a result, the tax hike may only boost annual CPI growth by 10bp," CGS-CIMB Research said in its note today.
The 2024 Budget announcement on October 13, 2023 proposed lifting the service tax rate from six per cent to eight per cent.
In 2022 annual CPI stood at 3.3 per cent.
CGS-CIMB said any material adjustment to targeted subsidies is likely to affect the CPI, especially in 2024.
"We maintain our 2023F CPI projection at 2.8 per cent yoy in 2023F and 2.5 per cent in 2024F pending further updates on subsidy rationalisation measures," CGS-CIMB said in its note.
Malaysia's CPI rose 0.1 per cent month-on-month and 1.9 per cent yoy in September 23 (vs. 0.2 per cent mom and 2.0 per cent yoy in Aug 2023), lower than CGS-CIMB and market's expectations due to lower food and transport prices.
Meanwhile, core CPI was sustained at 2.5 per cent yoy in September 2023. For food, price decreases were broad-based, except for rice prices which rose 5 per cen yoy. Transport component fell into negative territory again at -0.1 per cent yoy, largely due to the decline in fuel prices.
The price of RON97 averaged RM3.40 in September 2023, compared with RM4.16 in September 2022.
Commenting on Malaysia's maiden release of its advance GDP estimate, CGS-CIMB maintained its 2023F GDP growth forecast at 4.0 per cent yoy following encouraging growth in 3Q23 advance estimates.
Department of Statistics Malaysia's 3.3 per cent GDP estimate came in higher than the research firm's projection of 3.0 per cent yoy growth.
"Despite normalised interest rate, spending activities remained resilient as we believe that government intervention in administered prices and heavy subsidies should continue to promote consumption growth in 4Q23. Further recovery in foreign tourist arrivals and domestic travel will also drive domestic demand," CGS-CIMB said.
It added that it believes that the worst is almost over for weak external demand. "In our view, potential massive stimulus from China seems likely to take place late 2023 which could improve world demand. Furthermore, key exports such as electrical & electronics are slowly starting to show reliable signs of improvement," the research note said.