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Friday, November 1, 2013

MARC: 'Unconditional' BR1M payout a concern

Posted on 28 October 2013 - 05:36am
Last updated on 28 October 2013 - 01:36pm

PETALING JAYA (Oct 28, 2013): While the 1Malaysia People's Aid (BR1M) programme is a boon to lower income households and proves invaluable in rebalancing income and wealth inequality, the "unconditional" nature of its payout is a concern, said Malaysia Rating Corp Bhd (MARC).

"We are concerned over the long-term impact of 'unconditional' cash transfers on work incentives and in potentially creating a culture of government dependency," the ratings agency said in a statement yesterday.

"We are still of the view that transfers are the optimum choice so long they are subject to certain conditions such as ensuring children attend school.

"In addition, giving food and other types of vouchers instead of cash may prevent the misuse of the allocation on purchases of items such as tobacco and alcohol," it added.

On the implementation of the goods and services tax (GST), MARC is positive on the timeframe of 17 months, adding that the comprehensive measures to mitigate the impact of its introduction show the commitment of the government in getting it off the ground.

"We view that the impact of GST on government revenue and the economy will generally be positive. However, the GST is regressive in nature, and its impact on the lower-income group will be disproportionately higher than on the high-income group (in terms of percentage)," it said.

The ratings agency does not think that the one-off BR1M payment of RM300 will be sufficient compensation for lower-income households as consumer prices are also expected to rise following the implementation of GST.

In contrast, middle-income households get an effective permanent cut in income tax, but even here MARC estimates the tax savings from lower tax rates and changes in the bands do not fully offset the higher tax burden arising from GST at 6%.

"While the measures for increasing the adoption of GST by companies are welcome and should be effective, the cut in the corporate income tax rate is unnecessary as companies will lose the tax liability they currently suffer under the present sales and service tax regime," it added.

MARC also hopes that the Price Control and Anti-Profiteering Act 2011 will be strictly enforced to prevent unscrupulous traders from hiking up prices unnecessarily.

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