The government should phase out subsidy cuts and be lenient in implementing goods and services tax (GST) as rising costs have already worsened Malaysia's business conditions, the Federation of Malaysian Manufacturers (FMM) said today.

Although manufacturers will survive 'by hook or by crook,' FMM said, they hoped the government will not spring more cost-push policies like minimum wages, fuel, gas and electricity hikes and even the goods and services tax (GST) without first consulting the industry.

"The main concern is cost. There have been many cost increases and we expect more to come.

"Our plea to the government is to give more notice so we can plan ahead," FMM president Saw Choo Boon told reporters at FMM's headquarters in Kuala Lumpur.

Saw (right) said this after FMM presented its latest six-monthly survey, showing business conditions to have further worsened from the six-month period of January to June 2014.

The business conditions index, garnered through responses from 288 manufacturers, stood at 95, down 13 points from a year ago.

Growth neutral threshold is 100. In the January to June 2013 survey period, the index was at 108.

To cope, the FMM survey showed, 75 percent of its 2,700 members would likely look at increasing productivity, more than those hoping to reduce costs.

'GST will further complicate matters'

"By hook or by crook, businesses will have to find a way to manage it. We can increase productivity, to get more from the same, we can eliminate unnecessary workers or even recycle, " Saw said.

But this will be further complicated by preparations to implement the GST on April 1, 2015.

"Under the GST conditions, the punishment for non-compliance is quite severe," Saw said.

"The government can be more lenient in the first six months after GST, for companies that have tried hard to comply," he added.

From the FMM survey, almost half of its respondents said they were still "unsure of documentation and procedures".

One in four said they may need to hire new staff and 72 percent said they had difficulties training their staff to understand the GST.

Some 56 percent said that there would be a financial impact, while FMM's Saw said that he anticipated inflation would surely rise after the GST is implemented.

FMM said that many worries arose because details of the new consumption tax were still under wraps, despite its implementation being just 10 months away.

Other concerns of the manufacturers pointed out in the survey included the lack of a secure natural gas supply and Malaysia's graduation from European Union's generalised scheme of preferences (GSP), which ended in January this year.

However, since Europe is not a major export market for Malaysian goods, 62 percent of those surveyed told FMM that ending GSP would have no impact on them. Only 19 percent of manufacturers were severely affected by the cut in favoured trade ties.

For the next six months, however, the FMM survey indicates, manufacturers expect business conditions to improve. This is largely due to the outlook of an improving US economy.

The Malaysian Institute for Economic Research (MIER) helped carry out the survey, which was carried out between April 3 and June 6.

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