Post-GST, hawkers tell of shrinking income, uncertain future

Small food stall operators do not have a yearly turnover of RM500,000, so they cannot pass on the extra 6% to their customers. – The Malaysian Insider pic by Afif Abd Halim, July 25, 2015.

Four months after the goods and services tax (GST) was imposed, small food stall operators are getting squeezed from both ends – on one end, thrifty customers and on the other, price-hiking suppliers.

S. Renuga (pic, right) and 15 other stall owners told The Malaysian Insider how their operating costs went up and profits shrinked as they absorbed the extra 6% in GST for raw materials.

All but two of the 16 decided not to raise prices even as costs went up, so as not to scare away customers, most of whom are low to middle-income workers.

Food stall operators are special when it comes to GST's impact on businesses, as most of their raw materials are zero-rated.

Unlike other retailers, they do not suffer an across-the-board 6% hike in the cost of doing business, so the assumption is that they should not pass on GST to consumers, unless they reach a yearly turnover of RM500,000.

A government-sponsored video on GST states that consumers will not get charged the consumption tax if they eat at certain eateries, like mamak restaurants.

But the reality is a lot more complicated. Not all food or the input required is exempted from GST.

Sauces, canned and processed foods, juices, cordials, ice, electricity and the packaging necessary to prepare and serve food are charged GST from their suppliers.

Unlike suppliers, small food stall operators do not have a yearly turnover of RM500,000, so they cannot pass on the extra 6% to their customers.

“We cannot raise prices either because if we do, our customers will run away since they are also on a budget,” said 34-year-old Renuga, who runs her stall in Klang with husband, Ramesh, 35.

Their smaller earnings pose a challenge to a key policy thrust of Putrajaya, which wants to promote small-scale entrepreneurship, like selling food, as a way for the poor to earn more.

Because, if GST leads to lower income for those selling street food like Ramly burger, nasi lemak and pisang goreng, why should anyone get into business in the first place?

Sales and profit

Of the 16 operators interviewed recently, only two said there was no real difference in terms of sales or profit after the GST came into force last April.

Everyone else has seen a drop in their profits since then, and six operators said their profits dropped 10%.

Six others reported a worrying fall of more than 25% in profits, while two reported moderate drops of between 11% and 25%.

Nine said they had been able to maintain the same amount of sales despite smaller profits.

Six reported sales dropping as their customers ate out less.

“Before GST, some of my customers came to my stall five times a week. Now they come twice a week,” said Low Wai Hun, 38, who runs a Chinese-fusion stall in Petaling Jaya.

Low has seen his profits drop by more than 25% since April due to a combination of declining sales and a two-fold increase in the price of raw food, as most of his items are not GST-free.

This was a familiar theme among all the operators: the more processed foods in their menus, the higher their costs and the lower the profits.

Burger stall owner Norliza Meli (pic, left), 39, of Subang Jaya, raised prices in order to deal with the higher costs of burger patties, hot dogs, mayonnaise, sauces and wrapping paper.

“If previously, a burger was RM2.80, now it's RM3. The extra 20 sen is to cover the extra cost from GST,” said Norliza, who is unable to pass on the GST tax to consumers.

Two operators who said they felt no real impact from GST on their sales are at the opposite ends of the spectrum, one a kerepek/muruku seller and the other a Tom Yam restaurant that had more than 25 tables and six workers.

The ones suffering the most were those in the mid-size range, almost all of them food court stall operators with one or two workers.

“Even my staff have asked me for a raise because they can’t cope with living expenses that went up due to GST. So besides fresh food, my labour costs have also gone up,” said Thangavelu Ponnen, 64, who runs a mixed rice stall in Petaling Jaya.

Mere survival

The plight of food stall operators highlights a big challenge in Putrajaya's GST roll out in April – pricing of raw materials as ingredients move along the supply chain.

A GST price guide issued by the Domestic Trade, Consumer Affairs and Cooperatives Development Ministry states that almost all raw food are not taxed.

But suppliers claimed some of the operators have found other ways to increase prices without directly charging a tax.

“Three months ago, I bought cockles for RM3 a kilo, now they’re RM5 per kilo,” said laksa hawker Lee Seng Hin (pic, right), 70, in Petaling Jaya, adding that he knows that cockles are not charged tax.

“They give all sorts of excuses like river pollution, so cockles died and there was a shortage in supply.”

Thangavelu said his supplier also raised the price of chicken even though poultry is zero-rated.

“He said chicken no GST, but the feed for chickens is taxed with GST. So the price of chicken must go up.”

Chicken rice seller Atan Samsuri (pic, left) believes this trend of rising prices will get worse as the government makes further cuts to petrol subsidies.

On July 1, the price of RON 95 and RON 97 went up by 10 sen a litre.

“Now things have gone up by 80 sen to RM1,” said the 35-year-old who took over his Petaling Jaya stall from his father.

As costs go up and sales shrink because customers scale back on eating out, he is worried about the future of his business.

“My dad could earn a living, buy property and raise kids on the income of this stall. But for me and my wife, it’s just survival.”

Renuga, in Klang, illustrates this problem when describing how difficult it is for her to expand her business in order to better serve her customers.

“I want to get an extra worker so that I can properly serve my customers. But since GST has eaten into my profits, I don’t have enough to hire a new one.”

Without extra help, she risks losing her customers who can’t wait long since they only have one hour for lunch.

And if she loses regular customers or future ones, she loses the opportunity to make more money for her and her family.

- TMI