IT may be too early to gauge the effect of the new 6 per cent Goods & Services Tax (GST) on the Malaysian economy, but businesses say the feeble ringgit is already exacting a heavy price, with many saying they feared the depreciation of the currency more than they did the GST.
Indeed, nearly nine out of 10 respondents polled by the Associated Chinese Chamber of Commerce & Industries Malaysia (Acccim) on the economic situation in the second half of last year said they expect the ringgit to continue its downward slide against other major currencies in the "coming future".
The ringgit has shrunk some 14 per cent against the greenback since mid-2014, and given analysts' projections of a continuing dip towards the RM4.00 level by year-end, the concerns appear warranted.
The ringgit is now hovering at around 3.6597, having rebounded slightly from its mid-March peak of about 3.71; its pegged level following the Asian financial crisis of 1997/98 was 3.8.
Asked whether the fall of the ringgit had affected their selling prices and costs, nearly all respondents in the Acccim survey said business has been affected one way or another, whether in the form of selling prices and/or costs. In the currency crunch, exporters that have mostly ringgit-denominated inputs but sell in US dollars - glove manufacturers, for example - have benefited from the surging dollar.
But businesses caught in the maelstrom of spiralling expenses are finding it tougher to pass on the additional costs to increasingly wary consumers.
It is worth noting only 8.2 per cent of those polled were export oriented; an overwhelming 80.5 per cent were domestic market-oriented, and the remaining 11.3 per cent were a mixture of both.
Ahead of the rollout of the GST on April 1, the Malaysian Automotive Association had sought to temper expectations of lower car prices, given the RM's depreciation against major currencies.
Its president Aishah Ahmad said: "The biggest issue to us right now is the exchange rate."
She noted that many vehicle parts were sourced in US dollars and that that would be more significant in determining car prices than the consumption tax, which replaced a 5 to 15 per cent sales & service tax.
Post-GST, car makers such as Volkswagen and BMW maintained their prices, but Mercedes instituted a slight reduction of 0.5 to 1 per cent on its vehicles. Domestic car maker Proton, which uses more local components, announced lower prices of up to 3.25 per cent on all its models.
Retailers with significant operations in China, such as Parkson Corporation, are also keeping a close eye on the ringgit.
Its chief operating officer Law Boon Eng said last week that GST would have a nominal effect on prices relative to the ringgit's depreciation of about 16 per cent against the renminbi since June 2014. He estimated that the GST and the exchange rate factor could result in goods costing a fourth more.
Although consumer spending is expected to recover after a period of adjustment to the GST, the effects of a sickly ringgit will be harder to overcome. Business confidence has sunk to the lowest in a decade. Acccim respondents showed themselves to be pessimistic about the economic outlook for this year and also the next.