GST EVENT CALENDAR

GST MALAYSIA CALCULATOR

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Saturday, October 19, 2013

Gearing GST towards public acceptance


Published: Saturday October 19, 2013 MYT 12:00:00 AM 
Updated: Saturday October 19, 2013 MYT 7:36:06 AM

GOODS and Service Tax (GST) is tax on what is spent and not on what is earned. Earlier on March 30, 2010, Prime Minister Datuk Seri Najib Tun Razak unveiled the New Economy Model (NEM) and it recognises that a wider tax base is an important part of reforms, where the introduction of GST is a key component. It was reported that a more diversified tax base is needed to compensate for an expected future reduction in the share of revenue from oil and gas.

Najib will make his Budget 2014 speech on Oct 25 and the long overdue GST is likely to be a major part of a package of tax reforms. Malaysia’s household debt to GDP was 83% in mid-2013 compared with 70% in 2009. Policymakers and tax analysts too consider its introduction inevitable, particularly given the paradigm shift in tax policies worldwide in favour of indirect taxes. More than 160 countries worldwide have already introduced GST (known as VAT in European countries) and more than 90% of countries have some form of GST exposure.

Goods and Services Tax Bill

On Dec 16, 2009, a Goods and Services Tax Bill was tabled in Parliament but it was subsequently withdrawn for reassessment. The GST Bill sought to impose a tax on goods and services but essential items would either be zero-rated or exempted. To protect small businesses, the Finance Ministry has recommended a threshold of RM500,000 in annual turnover. This would imply businesses below that threshold need not register nor do they need to collect GST. Once an announcement is made to introduce GST, actual implementation would be subject to a 12- to 15-month long preparation period for businesses to familiarise themselves with the new accounting procedures.

Weaknesses of existing system

The existing sales tax, introduced in 1972, is a single stage tax on the manufacturing of goods and the importation of manufactured goods. Exemption from the tax is dependent on the turnover (RM100,000) of licensed manufacturers and the type of manufacturing activity. Despite a complicated procedure for claiming relief of the tax in respect of business-to-business transactions, the tax has a cascading effect, which means that, to a certain extent, the tax incurred by manufacturers is taxed again at subsequent stages of the manufacturing process. The service tax was introduced in 1975 and it is also found to have an arbitrary effect on consumer prices.

Service tax only applies to a narrow set of defined activities classified as “taxable services” whose value has exceeded (exceptions apply) a certain annual threshold. Liability for service tax is therefore based on a combination of business characteristics and the types of services. The turnover threshold does not apply to numerous professional services. The service tax does not only have a cascading effect, it also accumulates with sales tax.

Impact on consumer prices

The introduction of GST will have an impact on consumer prices and, therefore, on real income. The extent of the tax burden on various categories of expenditure will depend on the GST rate, threshold limit as well as on the scope of the exemptions or application of zero rating.

In 2012, sales tax yielded RM9.2bil while service tax yielded RM6.2bil. Both these taxes account for 7.7% of Federal Government taxes. In the same year, indirect taxes (RM33.1bil) merely accounted for about 15.8% of federal taxes while direct taxes accounted for RM124.8bil or 59.7% and non-tax revenue was RM51.3bil or 24.5%.

An increase in revenue collection from the switch to GST from existing sales tax and service tax will come from enforcing tax collection across a broader chain of production and distribution of goods and services.

Attraction of GST

The single most attraction of GST is it being seen as a neutral tax that would provide substantial revenue to the Government without lowering the effectiveness or efficiency of the market system in allocating capital, land and labour. It is a means of increasing the government tax base by reaching out to a broader group of people, namely consumers. The GST system has a self-policing mechanism due to in-built cross-checking features which would improve tax compliance. Taxpayers (i.e. registered persons) are also compelled to maintain orderly accounts and hence there is less scope for tax evasion.

GST in Singapore

In 1994, the Singapore government introduced GST at a low rate of 3% and with a high threshold limit of S$1mil. Hence, only large business enterprises were needed to register to collect GST. However, very minimal goods and services were either zero-rated or exempted, hence lowering tax leakages and improving efficiency in the collection of revenue. The GST rates were gradually increased over the years to 7% from July 2007 onwards.

During this period, corporate tax rate in Singapore was lowered from 30% in 1993 to 27% in 1994; and further lowered over the years to 22% in 2003; 20% in 2005; 18% in 2008 and 17% from 2010. To help companies cope with rising business costs, the Finance Minister announced in Budget 2013 that, for the years of assessment 2013, 2014 and 2015, companies will receive a 30% corporate tax rebate that is subject to a cap of S$30,000 per year.

Salient features of GST

If GST is implemented, the tax would be charged on any taxable supply of goods or services made by a taxable person; and on the importation of goods or services. The word “business” includes any trade, commerce, profession, vocation or any other similar activity.

The generic term GST covers a set of broad-based ad valorem taxes that share two common features, namely:

(i) The tax is collected at every stage of the production process, and

(ii) The amount collected at each stage is based on the value added at that stage.

The GST is supposedly a regressive tax but there are ways to mitigate the tax burden faced by middle and lower income groups as well as small businesses. It is likely that the proposed GST charged on a broad range of taxable supplies is at the standard tax rate of 5%, hence revenue from GST would only increase modestly. Essential supplies of over 40 items would be either zero-rated or exempted and such a move would be favourable to the broader community, particularly the lower income groups.

Zero-rated supplies

Zero-rated goods and services are goods that have no tax charged on consumers. This means that the final consumer will literally pay GST at a rate of zero per cent. When goods or services are zero-rated, the firm can still claim credits for all inputs but is required to charge output tax only on non-zero rated supplies, hence it could receive a net refund.

Likely zero-rated supplies are exports of goods, international services, agriculture produce, essential foodstuff (example: rice, sugar, table salt, plain flour and cooking oil), livestock supplies and fish. It is likely that a pre-determined units of electricity to domestic users and limited cubic metres of water to domestic users would be zero-rated.

Exempted supplies

Exempted supplies are those items that “miss out” on one or more stages of the GST assessment process. In Australia, exempted supply are referred to as “input taxed supply”. Producers of exempted supplies do not receive a credit for the GST incorporated in their input costs and are not charged tax on their exempted supplies. The effect is that the commodity is taxed at a lower effective rate. For example, if a firm purchases inputs costing A$110, GST-inclusive (at say 10%) and makes exempted supplies of RM160, the only tax on final sales is the (non-credited) A$10 included in its purchases, so the effective rate is (A$10/A$160) = 1/16 of the gross price (7%).

Exemptions, however, introduce economic inefficiencies and reduce the revenue base, but the effects will not be as severe as zero-rating because the exempted commodities still bear some GST. The effective rate is proportional to the share of value-added at the relevant stage in the total value of the commodity.

Critical items likely to be treated as exempted supplies are financial services, private health and education, domestic transportation of passengers, sales and lease of residential property, and land for public use. The GST credit offset mechanism cannot be used to tax financial services on a basis consistent to other goods and services. This is due to the absence of explicit fees for financial services; the value of input supplied by financial institutions is a spread that may be only a few basis points in the total charge to a customer.

Distributional effect of GST

The author investigated the distributive effects of a comprehensive GST on prices of a broad group of commodities and services in Malaysia. Base data was compiled from the Household Expenditure Survey (HES), which collates information on levels and trends of consumption expenditure by households on a comprehensive range of goods and services. The 11-monthly expenditure classes (categories) vary from below RM500 (Class 1) to above RM5,000 (Class 11). A simulation model was developed to determine the effects of the GST on households. Four GST rates, namely 3, 5, 7 and 10 percentile points were considered in the simulation exercise.

The findings of this study suggest that the GST is not necessarily a regressive tax and it is even found to be fairly progressive.

The distributional effect of GST in Malaysia should not be examined in isolation but viewed within the context of a fiscal system comprising tax and government expenditure programmes. A tax is seen as regressive when it would impose a proportionately higher tax burden on lower income earners than higher income earners. The mild regressive aspects of the indirect tax could be overcome with financial assistance programmes, imposing graduated excise duties on non-essentials and prudent use of a GST coupon system to support the lower income groups.

Dollar for dollar reimbursement

It is generally felt that GST implementation is more urgent now due to rising GDP-debt ratio, low earnings from the petroleum, gas and commodity sectors as well as the need to narrow the budget deficit. In a GST environment, greater efforts are needed to boost productivity and promote innovation. In this regard, a dollar for dollar reimbursement should be given for GST-related expenditure on R&D activities, cost of purchase of new accounting software and expenses related to re-training staff. A double deduction should also be given under the Income Tax Act 1967 for all GST related book-keeping expenses which the Malaysian Inland Revenue Board would find useful for tax audit verification.

The GST when implemented in Malaysia can be seen as a reformatory move to further promote efficiency of the tax administration.

> Jeyapalan Kasipillai is a professor and deputy head of school of business, Monash University Malaysia. He is also an adjunct senior research fellow, Monash University Melbourne.

Friday, October 18, 2013

GST shouldn’t be delayed, says PwC


Posted on 18 October 2013 - 05:37am
Last updated on 18 October 2013 - 08:49am

KUALA LUMPUR (Oct 18, 2013): The challenges in dealing with the country's budget deficit will increase or worsen, potentially resulting in a further downgrade by global rating agency Fitch Ratings, if the goods and services tax (GST) is not implemented soon, warned PricewaterhouseCoopers Taxation Services Sdn Bhd (PwC) senior executive director Wan Heng Choon.

"Fitch said downgrading may continue or get worse and one of the factors they pointed to was too narrow a tax base and Fitch also said Malaysia should seriously look at GST," he told a media briefing on PwC's Budget 2014 wish list here yesterday.

"If we stand still means we fall behind. If we move forward in terms of looking at measures to address deficit, it will at least give us a chance to be no worse off," he added.

PwC has also maintained its recommendation of an initial GST rate of 6% despite comments by some economists that a 4% rate is more acceptable.

"If it (GST) is at 4%, it will be revenue neutral. The government will be collecting the same amount of money from (the existing) sales and services tax (SST). (If that is so,) why do it at all? Just keep the present taxes.

"There's no reason to put the country through GST if all you want to do is take the same amount as from the present taxes," said Wan.

PwC senior executive director Jagdev Singh said not implementing the GST means less flexibility for the government to reduce corporate taxes.

"We need more revenue sources because trying to squeeze more out of direct taxes will be difficult," he said.
He added that countries in the region are reducing or have reduced corporate taxes and Malaysia needs to do the same to remain competitive.

The GST is also expected to cover a larger base of 60,000 to 80,000 taxpayers compared with only 30,000 from the existing SST.

On excise duty for breweries, Wan reckons that revenue collected from excise duty is not significant. Rather, the government should focus on the issue of smuggling by improving enforcement by the Royal Customs Department.

A further taxation on the gaming industry would also increase cost for operators and drive the industry into the black market, resulting in loss of revenue to the government, said Wan.

Budget 2014 overshadows US debt deal in Malaysia


Published: Friday October 18, 2013 MYT 12:00:00 AM 
Updated: Friday October 18, 2013 MYT 10:45:29 AM
Longer-term concerns rather than any deal over the
US debt ceiling curbed buyer appetite for riskier assets.

BUDGET Day is a time when many people sit glued to their TV screens listening to the Finance Minister deliver his all-important speech, as they want to know whether they would be better off or worse off after the details are announced. In Malaysia’s case, Prime Minister Datuk Seri Najib Tun Razak also holds the Finance Minister portfolio.

Next Friday is Budget Day.

Since August this year, the Prime Minister has been requesting for public feedback on the impending budget via the #Bajet2014 campaign. He wants to hear the rakyat’sgrouses and wish lists. Many have posted comments on what they would like to see being addressed on a variety of topics ranging from the cost of living and employment to education and social welfare.

Will all those who have expressed their views get their wish list?

One thing that many are expecting to be announced in his speech is the timeline for the implementation of the goods and services tax (GST). Yes, that has to come sooner than later since the Government needs to make fiscal reforms. The GST is expected to be effective come 2015.

At present, we pay a sales tax of 10% and 6% in service tax. In the future, the GST will replace the current narrow-based sales and service taxes. While a broad-based tax is one that applies to almost all purchases of goods and services, a narrow-based tax applies to fewer items.

It is estimated that a 5% GST rate would result in a net increase in tax revenue for the Government by up to RM8bil for the first two years.

The Government needs to reduce its budget deficit after global rating agency Fitch Ratings recently downgraded Malaysia’s sovereign rating outlook. While the reforms are necessary and the GST important, will it improve the Government’s financial position at the expense of the rakyat?

The introduction of the GST would normally mean a revision to the personal and corporate taxes.

But more pressing is the need to address the rising cost of living. The worst-hit segment is the middle-income earners, especially those who live in the urban centres. About 60% of total urban households earn RM4,999 or less, which is not enough to make ends meet in a big city like Kuala Lumpur.

To add fuel to the fire, the rising property prices make it difficult for many to own homes. Sadly, this group is not entitled to the Government’s financial assistance measures like the 1Malaysia People’s Aid programme or BR1M meant for the lower-income group, categorised as those with a household income of RM3,000 a month or less. This group is sandwiched between the rich and the poor, and is often said to be subsidising both the rich and the poor.

What hurts them the most, however, is the narrow tax band. They end up paying higher income taxes when they jump to upper tax bands, says a rating agency report.

It points out that if your chargeable income is about RM60,000, you pay 19% in personal taxes, as opposed to someone in Singapore who would pay 7% for a chargeable income of about S$80,000 or RM203,000.

Malaysia also has one of the highest tax rates in Asia, at 26%, imposed on those whose chargeable income is about RM100,000 per annum versus Singapore, where only those whose chargeable income is above S$320,000 (RM812,000) per annum fall in the top tax bracket.

To help reduce the burden of the rising cost of living, the Government should separate the combined relief for life insurance premium payments and Employees Provident Fund contributions from RM6,000 at present to RM3,000 and RM5,000, respectively, adds the report.

Among the rakyat’s wish list is that the Government should look into increasing the BR1M to help cushion the impact of the subsidy rationalisation.

Personal taxes for those aged 60 years and above should be abolished, and more affordable housing for those in the middle-income group should be provided.

Also, the rules for the entitlement of the tax relief on the medical expenses of parents should be relaxed.

Further, while there are enough roads that lead to almost everywhere now, the Government should focus on improving the quality of public transportation.

Although raising more money is vital for the Government, the rakyat’s wish list is that it keeps close tabs on its expenditure, do away with less-effective programmes such as the National Service and reduce wastage and plug leakages by tightening procurement.

And among all the things that the Prime Minister is going to announce next Friday, the one thing that he should avoid at all costs is to give his blessings to the idea of building the Malaysia-Sumatera bridge. That’s an idea that needs to be canned for good.

Business editor (news) B.K. Sidhu still feels prices for broadband access should be lowered to give more people access to faster speeds.

Information, clarity vital in carrying out GST


Published: Friday October 18, 2013 MYT 12:00:00 AM 
Updated: Friday October 18, 2013 MYT 9:55:37 AM

From left: Pwc's Senior Executive Director Wan Heng Choon,
PwC's Tax Leader Jagdev Singh and PwC's Senior Executive
Director Steve Chia having a chat after the media briefing
on PwC's Budget 2014 wish list. IZZRAFIQ ALIAS/The Star.
KUALA LUMPUR: Businesses need to have information and clarity on the introduction of the much-anticipated goods and services tax (GST) early on, in order to make necessary preparations.

“The uncertainty (of a fixed date) plagues businesses in their attempt to introduce the tax. Businesses are not reluctant to introduce the tax. In fact, they are for the tax. But until they have a clear date, it is impossible for them to start gearing up for the tax,” PricewaterhouseCoopers (PwC) senior executive director Wan Heng Choon told reporters at a briefing.

He noted that there was still some 80% of the business community that was not ready for the GST.

Although the right timing to implement the GST has been much debated on, Wan said the Government should not wait until a crisis is at hand before choosing to implement the tax.

“There is no right time to introduce the GST. It should be implemented at any moment in an economic timeline where it is still in a relatively strong position. Financial prudence cannot be set aside if Malaysia hopes to achieve vision 2020,” he said.

Should the GST rate be set at 6%, the Government would rake in an estimated RM32bil in annual revenue, Wan said.

PwC expects the GST implementation to come in during the second or third quarter of 2015, at the latest.

However, senior executive director and tax leader Jagdev Singh said crafting Budget 2014 would be difficult, as solutions to reduce the nation’s fiscal deficit need to be wide-ranging.

The Government has targeted to reduce fiscal deficit to 4% and 3% of gross domestic product (GDP) this year and 2015, respectively.

“It could take longer for us to achieve 3% by 2015. It would largely depend on expenditure and Government revenue,” he pointed out.

The GST was first announced during Budget 2005 for implementation in 2007. However, in February 2006, it was deferred as the Government wanted more time to get feedback from the public.

Wan added that the repeated false starts have proven to be a constant source of frustration for businesses to be GST-compliant. Furthermore, businesses need to know the GST rate in order to prepare, he reiterated.

Meanwhile, senior executive director Steve Chia encouraged the Government to bring back the full real property gains tax (RPGT) regime to 30% to curb speculation in the property market, as well as to control spiralling property prices.

However, Hwang-DBS Vickers Research said raising the RPGT and stamp duty could pose as a risk for higher property prices.

“We understand the Government needs to be seen to be actively reining in property speculation, but we do not advocate raising real RPGT, which has had a relatively short-lived impact in the past and could push house prices higher, as sellers may pass on the incremental costs to buyers,” it said.

It could also spur sellers to postpone disposal and developers to hold back launches due to weaker sentiment, which would lead to an even tighter supply in the market, it said.

GST Shouldn’t Be Delayed – PwC

on October 18, 2013



KUALA LUMPUR - The challenges in dealing with the country’s budget deficit will increase or worsen, potentially resulting in a further downgrade by global rating agency Fitch Ratings, if the goods and services tax (GST) is not implemented soon, warned PricewaterhouseCoopers Taxation Services Sdn Bhd (PwC) senior executive director Wan Heng Choon.

“Fitch said downgrading may continue or get worse and one of the factors they pointed to was too narrow a tax base and Fitch also said Malaysia should seriously look at GST,” he told a media briefing on PwC’s Budget 2014 wish list here yesterday.

“If we stand still means we fall behind. If we move forward in terms of looking at measures to address deficit, it will at least give us a chance to be no worse off,” he added.

PwC has also maintained its recommendation of an initial GST rate of 6% despite comments by some economists that a 4% rate is more acceptable.

“If it (GST) is at 4%, it will be revenue neutral. The government will be collecting the same amount of money from (the existing) sales and services tax (SST). (If that is so,) why do it at all? Just keep the present taxes.

“There’s no reason to put the country through GST if all you want to do is take the same amount as from the present taxes,” said Wan.

PwC senior executive director Jagdev Singh said not implementing the GST means less flexibility for the government to reduce corporate taxes.

“We need more revenue sources because trying to squeeze more out of direct taxes will be difficult,” he said.
He added that countries in the region are reducing or have reduced corporate taxes and Malaysia needs to do the same to remain competitive.

The GST is also expected to cover a larger base of 60,000 to 80,000 taxpayers compared with only 30,000 from the existing SST.

On excise duty for breweries, Wan reckons that revenue collected from excise duty is not significant. Rather, the government should focus on the issue of smuggling by improving enforcement by the Royal Customs Department.

A further taxation on the gaming industry would also increase cost for operators and drive the industry into the black market, resulting in loss of revenue to the government, said Wan.

Ahmad Maslan: GST may not be implemented under Budget 2014


OCTOBER 18, 2013

Ahmad Maslan said the government has agreed in principle to
implement the tax but it has not decided when to enforce the
tax and its percentage in the initial stage.– Picture by Siow Saw Feng

KUALA LUMPUR, Oct 18 — Deputy Minister of Finance Datuk Ahmad Maslan hinted today that the much talked-about goods and services tax many not be implemented under Budget 2014 to be tabled in Parliament next Friday..

He said the government has agreed in principle to implement the tax but it has not decided when to enforce the tax and its percentage in the initial stage.

“When to implement it, what percentage, we don’t know yet, though we’ve stated in official statements (to implement the tax),” he told reporters after a pre-launch to collect funds to build the Integrasi Islam Malaysia madrasah. – Bernama 

- See more at: http://www.themalaymailonline.com/malaysia/article/ahmad-maslan-gst-may-not-be-implemented-under-budget-2014#sthash.iAFNm0Wh.dpuf

Mungkin tiada GST dalam Bajet 2014, kata Ahmad Maslan


OCTOBER 18, 2013
LATEST UPDATE: OCTOBER 18, 2013 01:55 PM


Timbalan Menteri Kewangan, Datuk Ahmad Maslan (gambar) membayangkan bahawa cukai barangan dan perkhidmatan (GST) tidak akan dilaksanakan pada Bajet 2014.

Ahmad berkata, kerajaan pada dasarnya bersetuju melaksanakan GST, namun masih belum memutuskan bila dan berapa kadar peratusan cukai yang akan dikenakan pada peringkat awal pelaksanaannya.

"Bila hendak dibuat, berapa peratus kita tidak tahu, tapi sudah nyatakan dalam jawapan rasmi bahawa kita akan laksanakan," katanya kepada pemberita selepas majlis pelancaran awal 'Mengumpul Dana Membina Madrasah Integrasi Islam Malaysia' di Kuala Lumpur, hari ini. - Bernama, 18 Oktober, 2013.

GST mungkin tidak dilaksanakan pada Bajet 2014


2013/10/18 - 14:33:38 PM

KUALA LUMPUR: Timbalan Menteri Kewangan, Datuk Ahmad Maslan membayangkan bahawa cukai barangan dan perkhidmatan (GST) tidak akan dilaksanakan pada Bajet 2014.

Ahmad berkata, kerajaan pada dasarnya bersetuju melaksanakan GST, namun masih belum memutuskan bila dan berapa kadar peratusan cukai yang akan dikenakan pada peringkat awal pelaksanaannya. 

"Bila nak dibuat, berapa peratus kita tak tahu, tapi sudah nyatakan dalam jawapan-jawapan rasmi bahawa kita akan laksanakan," katanya kepada pemberita selepas majlis pelancaran awal 'Mengumpul Dana Membina Madrasah Integrasi Islam Malaysia' di sini, hari ini. 

- BERNAMA

GST may not be implemented



18 October 2013

The much talked-about goods and services tax many not be implemented under Budget 2014, Deputy Finance Minister Datuk Ahmad Maslan hinted today. 

Prime Minister Datuk Seri Najib Razak, who is also the Finance Minister, will table the keenly-awaited budget in Parliament next Friday. 

Ahmad said eventhough the government had agreed in principle to implement the GST, it has not decided when to implement the tax system and the initial percentage rate. 

"When to implement the GST, what is the initial percentage rate, we don't know yet, but we have stated in our official statements (to implement the GST), he told reporters after the pre-launch of a fund-raising to build a madrasah called "Madrasah Integrasi Islam Malaysia".

Ahmad said the taxation system used by the government now was inefficient and outdated. 

He said the GST was a fairer and an effective tax system as compared with the double tax system -- sales and service tax -- being enforced currently. 

"We want to merge them (sales and service tax) with the GST so that taz collection will be more efficient and systematic," he said. 

The deputy minister said the GST, which has been implemented in 160 countries, will charge a lower rate from the 16 per cent now, sales tax 10 per cent and six per cent service tax. 

Meanwhile, the Madrasah Integrasi Islam Malaysia, which will be built by Yayasan Amal Maaruf, will serve as a one-stop centre, comprising a tahfiz learning centre, an old folks' home and a dialysis centre as well as other modern facilities. 

Estimated to cost RM15 million each, Madrasah Integrasi Islam Malaysia will be built in 13 states nationwide, with overall costs totalling RM260 million.-- Bernama


GST mungkin tidak dilaksana pada Bajet 2014 - Ahmad




KUALA LUMPUR 18 Okt. - Timbalan Menteri Kewangan, Datuk Ahmad Maslan membayangkan bahawa cukai barangan dan perkhidmatan (GST) tidak akan dilaksanakan pada Bajet 2014.

Ahmad berkata, kerajaan pada dasarnya bersetuju melaksanakan GST, namun masih belum memutuskan bila dan berapa kadar peratusan cukai yang akan dikenakan pada peringkat awal pelaksanaannya.

"Bila nak dibuat, berapa peratus kita tak tahu, tapi sudah nyatakan dalam jawapan-jawapan rasmi bahawa kita akan laksanakan," katanya kepada pemberita selepas majlis pelancaran awal 'Mengumpul Dana Membina Madrasah Integrasi Islam Malaysia' di sini hari ini. - BERNAMA



© Utusan Melayu (M) Bhd 

GST may not be implemented under Budget 2014, says Ahmad Maslan


Posted on October 18, 2013, Friday

KUALA LUMPUR: Deputy Minister of Finance Datuk Ahmad Maslan hinted on Friday that the much talked-about goods and services tax many not be implemented under Budget 2014 to be tabled in Parliament next Friday..

He said the government has agreed in principle to implement the tax but it has not decided when to enforce the tax and its percentage in the initial stage.

“When to implement it, what percentage, we don’t know yet, though we’ve stated in official statements (to implement the tax),” he told reporters after a pre-launch to collect funds to build the Integrasi Islam Malaysia madrasah. – BERNAMA


GST may not be implemented under Budget 2014


Posted on 18 October 2013 - 01:52pm
Last updated on 18 October 2013 - 03:35pm

KUALA LUMPUR (Oct 18, 2013): Deputy Minister of Finance Datuk Ahmad Maslan hinted today that the much talked about goods and services tax many not be implemented under Budget 2014 to be tabled in Parliament next Friday.

He said the government has agreed in principle to implement the tax but it has not decided when to enforce the tax and its percentage in the initial stage.

"When to implement it, what percentage, we don't know yet, though we've stated in official statements (to implement the tax)," he told reporters after a pre-launch to collect funds to build the Integrasi Islam Malaysia madrasah. – Bernama

GST may not be implemented under Budget 2014, says Ahmad Maslan

Bernama
Friday, October 18, 2013

Ahmad Maslan hinted that GST may not be implemented under
the Budget 2014 which will be tabled next Friday. (File pic)

KUALA LUMPUR -- Deputy Minister of Finance Datuk Ahmad Maslan hinted today that the much talked-about goods and services tax may not be implemented under Budget 2014 to be tabled in Parliament next Friday..

He said the government has agreed in principle to implement the tax but it has not decided when to enforce the tax and its percentage in the initial stage.

"When to implement it, what percentage, we don't know yet, though we've stated in official statements (to implement the tax)," he told reporters after a pre-launch to collect funds to build the Integrasi Islam Malaysia madrasah.-BERNAMA-

Better latte than never — Cass Shan


OCTOBER 17, 2013

OCT 17 — Ever enjoyed a cup of latte as you read through the morning paper, check Facebook for updates or even prepare the day’s breakfast in the kitchen?

A latte can mean so many different things – from a morning jolt into wakefulness, to a sweet lingering taste to greet the day and a stimulant before embarking on the day’s work day. And now, that cup of latte that you buy from a coffee parlour can mean one more thing – contribution to society and country.

The urban family is may be more modern yet can be as patriotic as families elsewhere. They bustle around with new technologies, yet are acutely aware that their advantages in living must be shared and made available to all. They are educated with a gentle reminder that education is not a privilege but a necessity in the knowledge era. They enjoy some little luxuries like dining in a nice restaurant now and then, yet know that there are many who a less fortunate who did not have the opportunity to enjoy the same.

The urban family wants to pay a part in moving Malaysia into developed nation status and is keenly aware that the government is actively striving to bring benefits to the country and the less fortunate. The urban family wants to help. Now, that cup of latte is how they can help.

With the soon to be introduced GST (Goods and Services Tax) system, the urban family will be glad a newer, better tax system will replace the current Sales and Service Tax. The GST is a more comprehensive, effective, transparent, and business friendly tax system. The introduction of the GST can overcome the various weaknesses inherent in the present consumption tax system, such as the cascading tax, double tax and pyramiding tax, tax erosion and leakages through transfer pricing and other means. Besides that, GST is expected to increase tax compliance and is easier to administer in view of its self-policing method. This is one of the main reasons why GST introduction should be expedited rather than delayed further, as increased tax compliance will lead to better preparations for the nation in order to deal with the challenges of the coming global headwinds.

With income derived from the GST, families in the lower income bracket live their life better. The urban family knows this – and smiles as they sipped through their morning latte, knowing that the GST imposed on a RM10 cup of latte from the coffee parlour are making another family happy. The urban family understands that GST will be introduced at a lower rate than we are paying now for Sales and Service Tax. Hence, depending on the rate, it will probably takes a mere 40 sen from that delicious cup of latte bought by the urban family to ease the financial burden faced by so many in the rural area. The urban family gets to enjoy latte, while ensuring that the rural families smile the same smile when they receive the contribution of that 40 sen.

How does that happen?

It happens because the government collects GST from goods and services purchased by the affluent, in order to implement policies and benefits for the poor. These policies include building of roads, hospitals and schools – hence providing care for all Malaysians. In principle, GST is imposed on all goods and services produced in the country including imports. However, certain basic foodstuff likes rice, sugar, flour, cooking oil, vegetable, fish and meat, eggs and essential services such as health and private education, public transportation, residential property and agricultural land are not subject to GST. Such exemption is to ensure that the lower income group is not burdened by GST.

The urban family has heard that a lot of Malaysians are under the RM3,000 income bracket. The GST does not affect these groups in an adverse way as the scope of charge for both (the income tax, SST and GST) types of tax are vastly different. The scope of charge for income tax is based on income received by an individual whilst the imposition of GST is based on the consumption of goods and services.

Presently, those not liable to income tax still pay sales tax and service tax on goods and services that they consume. The issue is, most consumers are not aware that the tax element has been embedded in the price of goods and services sold by the retailers. As a matter of fact, the imposition of GST will not make any difference to the tax burden of those earning below RM3,000 monthly as they would have paid tax on the consumption of those goods and services.

Hence, GST imposed goods and services is bought by those who can afford it, and contributes back to those who earns less than RM3,000 income through government assistance policies such as cash hand-outs. In essence, all Malaysians benefit from the income derived from GST through government-funded aid, projects, policies and economic reform.

The urban family either works at a business or owns a business. They are aware that in the European Union, the GST, better known as the Value Added Tax, are known as ‘output VAT’ (VAT on its output supplies) and ‘input VAT’ (VAT that is paid by a business to another business on the supplies it receives). A business is usually able to recover the tax it paid either by setting it against the output VAT of if in excess by claiming a repayment from the government. Hence, the support by the urban family toward GST implementation means a positive impact on society without the detriment of businesses.

As urban families often work at various businesses rather than in agriculture, the urban family takes into consideration how the GST system affects businesses. GST is charged and collected on all taxable goods and services produced in the country including imports. Only businesses registered under GST can charge and collect GST. GST collected on output must be remitted to the government. However, businesses are allowed to claim the input tax credit through the following mechanism and method: GST collected on output (output tax) is deducted against the GST paid on input (input tax), if there is excess, the amount shall be remitted to the government within the stipulated period, and if there is deficit, businesses can claim for refund from the government.

Hence, the urban family knows that GST is not a hold back to the same businesses they are involved in, whether through employment or the running and ownership of one. Instead, the many benefits and efficiency of the GST is good for business.

The urban family loves the idea of economic development through the implementation of a tax system already in use successfully in more than 170 countries. They embrace change knowing that change is essential to moving forward and trusts that a widely used system such as the GST has been proven to work, will help contribute to society and will not impose a burden on the less affluent such as those in rural areas.

Hence, the urban family will share this post in social media, for other urban families to welcome new methodologies that will benefit the country.

Are you going to click ‘share’ on Facebook as you enjoy that latte?

* This is the personal opinion of the writer and does not necessarily represent the views of The Malay Mail Online.

- See more at: http://www.themalaymailonline.com/what-you-think/article/better-latte-than-never-cass-shan#sthash.pHQfRa8c.dpuf

GST dan kesannya kepada rakyat


WARTAWAN SINAR HARIAN
17 Oktober 2013


SOAL Cukai Barangan dan Perkhidmatan (GST) yang bakal disentuh dalam Bajet 2014 menjadi isu hangat sejak kebelakangan ini.

Bagi mendapatkan gambaran jelas berhubung GST, Sinar Harian Online berpeluang menemu bual Ketua Eksekutif Institut Bagi Demokrasi dan Hal Ehwal Ekonomi (Ideas), Wan Saiful Wan Jan.

Ikuti temu bual kami bersama beliau bagi memberi sedikit pemahaman kepada orang awam berhubung GST.

SINAR HARIAN ONLINE: Apakah GST itu sebenarnya?

WAN SAIFUL: GST adalah satu bentuk cukai yang dikenakan ke atas setiap barang dan perkhidmatan yang kita beli. Ia bukan satu perkara baru sebenarnya. Lama dah ada tapi kita tak perasan. Kita panggil sebagai cukai jualan dan cukai perkhidmatan.
Apa yang dicadangkan oleh pihak kerajaan, ialah untuk menyatukan dua bentuk cukai menjadi Goods and services tax (GST).

Sebelum ini, kadar yang dikenakan sebenarnya agak tinggi juga. Satu 6 peratus (%), satu lagi 10%. Tapi apabila GST diperkenalkan ataupun jika GST diperkenalkan, kalau tak silap saya, kadar cukai yang sedang dibicarakan sekarang 4% lebih kurang. Jadi, kalau satu lagi cara kerajaan nak mempelbagaikan sumber pendapatan, yang mana semua orang sepatutnya kena bayarlah.

SINAR HARIAN ONLINE: Jadi, berapa sebenarnya kadar yang sesuai dikenakan jika ia mahu dilaksanakan?

WAN SAIFUL: Untuk menentukan kadar cukai ini sebenarnya, bukan satu proses yang mudah, yang boleh kita kata, okey 5%. Ia bukan seperti itu. Yang pastinya, banyak perkiraan. Kadang-kadang bukan perkiraan ekonomi semata-mata. Ada juga perkiraan politik yang perlu diambil kira. Contohnya, katalah kadar yang sepatutnya bila dikira dari segi ekonomi sepatutnya 10%. Kemudian, timbul persoalan dari segi politik. Adakah 10% ini akan menyebabkan rakyat marah kepada kerajaan kerana tiba-tiba mengenakan cukai tersebut. Maka, kerajaan kena ambil kira dua-dua perkara. Jadi, hubungan antara politik dengan ekonomi tidak dapat dinafikan dan ia satu fakta.

Saya rasa, mahu atau tidak mahu ia akan bermula dengan satu kadar yang rendah. Tetapi jika dilihat dari negara-negara yang lain, sebenarnya kadarnya lebih tinggi. Di UK sekarang tak silap saya lebih kurang 20%, di AS kadarnya berbeza mengikut negeri. Kadar itu suatu perkara yang berbeza-beza antara satu negara dengan negara lain.

Yang hampir pasti adalah sekali dimulakan, setiap tahun pasti akan naik. Kalau tak naik tahun ini, pasti naik tahun depan. Cukai ini, sekali wujud mesti akan naik. Jadi, saya jangkakan apabila dimulakan, saya hampir pasti akan dimulakan, ia akan bermula dengan kadar yang rendah. Yang sekarang disebut-sebut oleh orang ramai adalah 4%.

SINAR HARIAN ONLINE: Apa impak pelaksanaan GST kepada kerajaan?

WAN SAIFUL: Dari segi pelaksanaan GST, yang pastinya harga barangan akan menjadi berbeza daripada sekarang. Jadi, yang pastinya, jika harga sekarang RM10, apabila dikenakan GST sebanyak 4%, maka harga pasti akan naik sebanyak 4%. Itu tidak dapat dielak sebab ada cukai baru. Tetapi ia boleh diseimbangkan. Sekiranya kerjaan mengatakan bahawa mereka menghapuskan cukai jualan dan perkhidmatan, jadi, mungkin akan berlaku proses penyeimbangan di situ, di mana apabila cukai diperkenalkan, ada cukai dihapuskan. Jadi, mungkin ia akan turun jadi tengah-tengah balik. Akibatnya, kalau naik pun, akan naik sedikit. Malahan ada juga ahli ekonomi yang kata apabila kajian dibuat, sekiranya GST diperkenalkan, maka harga barang akan turun dulu sedikit. Kerana GST diperkenalkan kadarnya lebih rendah daripada gabungan cukai jualan dan pekhidmatan. Jadi, impak kepada harga barangan secara segera kita tak dapat nak jangka sekarang sebab ia bergantung kepada kadar yang ditentukan.

Tapi dari segi kerajaan pula, impak yang pasti akan berlaku adalah kerajaan akan dianggap tidak popular sebab rakyat akan mula mengatakan bahawa kerajaan mengenakan cukai. Sebelum ini tak ada cukai. Itu tak betul. Sebelum ini dah ada cukai, sekarang ini ditukar dalam bentuk cukai yang lain.

Tapi saya sebenarnya secara prinsipnya, secara umumnya, saya agak tidak menyukai cukai-cukai baru. Sebab bagi saya, rakyat bekerja keras untuk mendapatkan sumber pendapatan masing-masing, tiba-tiba kerajaan mengenakan cukai sebab kerajaan tak cukup duit. perkara ini pada saya agak janggal berlaku. Kerajaan belanja berlebihan, rakyat pula kena bayar. Tapi walau bagaimanapun, dalam hal GST ini ada sedikit pengecualian yang mana saya rasa GST ini bagus dilaksanakan. Sebab, orang ramai bercakap mengenainya. Sebelum ini, istilah yang sering kita gunakan ialah duit kerajaan. Sedangkan duit kerajaan itu tak wujud. Sebenarnya ia duit rakyat. Apabila rakyat merasakan mereka membayar cukai dan dia sedar bahawa kerajaan mengenakan cukai maka, bagi saya, apa yang akan berlaku ialah rakyat menuntut lebih banyak akauntabiliti daripada kerajaan. Walaupun secara umumnya, saya tidak menyukai pengenaan cukai pada rakyat tapi dalam hal ini, saya rasa ada faedah dari segi jangka panjang, demokrasi dan akauntabiliti dalam negara, ia agak positif.

SINAR HARIAN ONLINE: Implikasi pelaksanaan GST terhadap golongan pertengahan ke bawah dan tidakkah GST ini akan menambah beban rakyat berpendapatan rendah?

WAN SAIFUL: Saya rasa masih terlalu awal untuk kita nak jangka, ia menambah beban rakyat atau mengurangkan beban rakyat sebab ia amat bergantung kepada kadar yang dikenakan. Jika kadar rendah dan dihapuskan cukai jualan dan perkhidmatan, maka harga barang mungkin turun. Jadi, ia bergantung pada kadar yang dikenakan. Saya rasa kita tak boleh buat judgement awal terhadapnya. Tapi yang pastinya ialah, kalau rendah sekalipun sekarang dalam masa 5, 10, 15 tahun, saya pasti ia akan naik.

SINAR HARIAN ONLINE: Negara Asean yang melaksanakan GST dan bagaimana kesannya kepada negara dan rakyat itu sendiri?

WAN SAIFUL: Biasanya, kebanyakan negara memang ada GST. Di sebelah selatan, di Singapura, memang ada. Banyak juga negara lain yang melaksanakan GST.

Dari segi kesannya kepada sumber kewangan negara sudah tentu ini mengurangkan kebergantungan kerajaan kepada satu-satu sumber tententu. Contohnya, dalam konteks Malaysia, kalau kita nak mempelajari pengalaman daripada negara lain. Kita amat bergantung kepada pendapatan daripada minyak dan gas. Jadi, dengan adanya, cukai seperti GST, maka diharapkan kebergantungan kita kepada Petronas boleh berkurangan. Petronas boleh menggunakan pendapatan untuk pelaburan dan membangunkan syarikat kepada lebih baik.

Dalam bahasa mudahnya, asas cukai, sumber pendapatan negara akan menjadi lebih luas.

SINAR HARIAN ONLINE: Jika GST mahu dilaksanakan, apa sebenarnya yang kerajaan perlu ambil perhatian?

WAN SAIFUL: Saya rasa pendidikan terhadap rakyat itu amat penting. Sekarang ini, saya juga agak kecewa melihat kualiti perdebatan kita sebab apa-apa isu timbul, terus nak dijadikan isu politik kepartian. Satu parti kata nak buat, satu parti bantah. Satu parti bantah, satu parti kata bantahan itu salah. Ia menyebabkan kualiti perbincangan kita turun kepada satu tahap yang amat rendah sebenarnya. Iaitu sama ada parti aku yang betul atau parti kau yang betul, tak ada cara tengah-tengah. Mungkin sebenarnya, ada fakta yang dilupakan.

Saya rasa dalam proses persediaan ini, kita perlu meningkatkan kualiti penyampaian kita. Saya rasa peranan media sebenarnya amat besar untuk memastikan rakyat faham bahawa GST ini ada kebaikan dan keburukan. Impaknya pasti akan ada. Pada peringkat awal, harga barang mungkin turun. Saya tak pasti. Bergantung kepada kadar. Tapi dalam jangka panjang, ia pasti akan naik.
Jadi, pendidikan itu amat penting. Pendidikan itu perlu disertakan dengan proses menyedarkan rakyat bahawa sekarang apabila anda semua membayar cukai, maka anda perlu menuntut lebih banyak kebertanggungjawaban daripada kerajaan, jangan sambil lewa, seolah-olah duit itu tiada kena mengena dengan kita.

SINAR HARIAN ONLINE: Encik Wan menyebut mungkin kerajaan akan menghapuskan cukai jualan dan perkhidmatan, jadi kemungkinan itu...

WAN SAIFUL: Saya rasa memang tujuan kerajaan mewujudkan GST untuk menggantikan cukai jualan dan perkhidmatan.

SINAR HARIAN ONLINE: Nasihat atau cadangan Encik Wan untuk rakyat sendiri untuk berdepan dengan perkara ini?

WAN SAIFUL: Kita kena sedar bahawa cukai ini ialah satu bentuk pengambilan dana daripada rakyat yang dilakukan oleh kerajaan. Kalau rakyat tidak membayar cukai, maka boleh dikenakan tindakan.

Kalau nak beri dalam bahasa yang mudah, sebenarnya perbezaan antara cukai dengan mencuri sedikit sahaja sebenarnya. Mencuri salah di sisi undang-undang. Cukai halal sebab ada undang-undang yang menghalalkannya. Tapi kedua-duanya adalah proses pengambilan wang daripada A untuk diberi kepada B. Satu berlaku dengan cara paksaan dan satu cara yang dihalalkan oleh Parlimen. Tapi tetap paksaan juga sebab kalau tak bayar, masuk penjara.

Jadi, itu prinsip asal cukai. Sebab itu penting rakyat sedar kita kena ambil peduli bagaimana wang ini dibelanjakan kerana ianya diambil daripada kita secara paksa. Tapi kita kena sedar juga bahawa proses pembayaran cukai ataupun tindakan membayar cukai adalah tanggunjawab sebab sekiranya tidak ada cukai yang dikenakan, semua perkhidmatan awam yang kita nikmati sekarang, tak dapat diberikan.

Subsidy programme seen continuing


Published: 2013/10/16

The subsidy rationalisation programme (SRP) will continue to proceed gradually over a reasonable period of time, said Maybank Investment Bank Research.

Its economics team, in a meeting with Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar, together with other research houses, last Friday said subsidy was the session's "hot topic".

The question was on the subsidy rollback going forward - whether the government should announce a detailed timetable for the sake of transparency and credibility.

"In response, the minister stated that subsidy rationalisation would proceed gradually over a reasonable period of time, that is, we quote, "not too short or not too long".

"We interpret this remark to mean that the original SRP target of ending all subsidies for essential food items (sugar, flour, cooking oil), fuel (petrol, diesel, LPG) and energy (gas, electricity) by 2015 is no longer applicable."

According to Maybank, the government feels that rather than get fixated with outlining a timetable, it would be better for actions to do the talking and providing proof of commitment to carry out.

Although Wahid avoided queries on whether the goods and services tax (GST) would be introduced in the 2014 Budget and the time frame for it to come on board, he highlighted the need for a broad-based tax as source of income or revenue. Only 1.7 million of the 12.6 million workers in the country pay personal income tax.

Economists feel there is no guarantee the imposition of GST will be accompanied by the lowering of income tax as the government has to assess the revenue impact first.

This, they said, is because Malaysia looks set to introduce GST while having a budget deficit, so the pressure is for GST to be "revenue accretive" - which is in contrast with countries like Singapore and Australia that introduced GST amid balanced budgets, enabling the GST to be somewhat "revenue neutral" by providing lower income taxes in exchange.

The minister concurred with the call for BR1M to be tightened in view of the statistical anomaly between the 4.3 million recipients and the Department of Statistics' Household Income Survey 2012 that showed only 2.655 million households are eligible. 

The cash handout programme for households earning below RM3,000 per month (RM500 per household last year and this year) will be announced in the 2014 Budget.

On the current account surplus, he said the country's current account would remain in surplus, albeit narrower than before, pointing to recent improvements in external trade statistics, in reference to the numbers for July to August this year. There will be rescheduling and deferment of some infrastructure and investment projects. 

Projects to be deferred will be those with low economic multiplier effect and high import content, and a specific example mentioned was the proposed East Coast Economic Corridor's railway network, while there will also be some shifting in the implementation timeline for some projects, but by "months" rather than by "years".

However, a number of major infrastructure, oil and gas and government land development projects will proceed, like the KVMRT, RAPID and Warisan Merdeka (the latter will depend on its financial viability).

Tumpu golongan pertengahan


Oleh Fairus kassim
ekonomi@utusa.com.my

KUALA LUMPUR 17 Okt. - Bajet 2014 diharapkan lebih memihak kepada golongan pertengahan yang sebelum ini kurang mendapat tempat dalam bajet 2013 dari segi mengurangkan bebanan kos hidup.

Ketua Pegawai Operasi Naza Kia, Datuk Syed Hafiz Syed Abu Bakar berkata, antara yang boleh dipertimbangkan dalam bajet kali ini adalah pengurangan harga kereta dan cukai individu.

"Memang tidak dapat dinafikan insentif ini akan menambah kos yang banyak kepada kerajaan, tetapi ini adalah cara terbaik membantu golongan tersebut.

"Golongan pertengahan juga perlu sokongan asas daripada kerajaan untuk membantu mereka menikmati kehidupan yang lebih baik seperti mana golongan bawahan terima pada Bajet 2013," katanya kepada Utusan Malaysia ketika ditemui di sini hari ini.

Syed Hafiz berkata, dalam masa yang sama rakyat juga perlu faham jika penurunan harga kereta dilaksanakan pastilah pendapatan kerajaan berkurangan.

Sehubungan itu kerajaan mungkin akan melihat untuk mengurangkan lagi subsidi minyak dalam mengimbangi pendapatan negara.

"Pilihan perlu dibuat antara satu iaitu antara harga kereta atau harga minyak. Kedua-dua tidak boleh dilaksanakan secara serentak.

"Pada saya, suatu hari nanti negara perlu bergerak kepada dasar jangka hayat kenderaan untuk mengimbangi industri," jelasnya.

Bagi mengurangkan cukai individu, jelas beliau, pelaksanaan cukai barangan dan perkhidmatan (GST) adalah cara terbaik setakat ini untuk mengimbangi pendapatan kerajaan.

"Bagi saya GST lebih adil. Mereka yang kerap berbelanja perlu dikenakan cukai berbanding sistem sekarang ini.

"Saya harap bajet 2014 akan menyentuh pengurangan cukai individu," ujarnya.

Tambah beliau lagi, jumlah pekerja asing yang kini melebihi dua juta orang juga perlu dikurangkan bagi memberi lebih peluang kepada penduduk tempatan.

© Utusan Melayu (M) Bhd 

`Implement GST when economy is in growth stage'


Publication: NST
Date of publication: Oct 18, 2013
Section heading: Business Times
Page number: 012
Byline / Author: By Cheryl Yvonne Achu

KUALA LUMPUR: The goods and services tax (GST) should be announced now and implemented soon after when the country's economy is still in a growth stage, says a tax expert.

PricewaterhouseCoopers Taxation Services Sdn Bhd senior executive director Wan Heng Choon said the government should not wait for the global economic crisis to end before implementing the GST.

"The government should announce the GST now and allow businesses a grace period of 18 months to get ready for the new tax system," he said on the company's 2014 Budget wish list here yesterday.

Wan said the GST, if implemented, should be at six per cent, as it is equivalent to the present government sales and services tax.

"At six per cent, it will address the nation's fiscal deficit and provide for the transformation of a fundamental and equitable tax system in the country," he said.

He said the GST will also be a more stable source of revenue compared with income tax as it is less susceptible to economic downturns due to the consumption nature of the tax.

"The government is expected to rake in an annual revenue of about RM32 billion if the GST is implemented at six per cent," he said.

However, he said if the GST is at four per cent, it will only be "revenue neutral" and there is no point in imposing it.

"No reason to put the country through the GST if all you want to do is to take the same amount of money from the current consumption tax," he said.

Malaysia needs to cut expenditure, increase tax revenue to reduce budget deficit — Economist

Posted on October 15, 2013, Tuesday

SINGAPORE: Malaysia needs to undertake a mix of expenditure restraint and increase tax revenue as part of efforts to reduce its budget deficit, says Dr Shane Oliver, head of Investment Strategy and chief economist at AMP Capital Investors.

“Ideally Prime Minister Datuk Seri Najib Tun Razak should aim to gradually lower the budget deficit over time, not so fast as to adversely affect economic growth but enough to provide confidence to investors that it is heading in the right direction.

“Ideally this should be undertaken by a mix of expenditure restraint and increased tax revenue,” he told Bernama.

In terms of the former, Oliver said the government should focus spending as much as possible on boosting infrastructure as this would boost long-term economic growth.

He was asked to comment on how Malaysia could reduce its budget deficit.

Najib, who is also Finance Minister, is scheduled to table Budget 2014 on Oct 25 that will focus on reducing the fiscal deficit and enhancing national resilience.

He pointed out that the implementation of the goods and services tax (GST) is an important reform on the expenditure side.

While its implementation can come with teething problems, Oliver said it was in the long term interest of the country because GST provide a broad base for revenue growth and have less negative impacts on economic activity than personal tax, company tax and various other levies and charges. — Bernama


Striking the right balance

by Ronnie Teo, bizhive@theborneopost.com. 
Posted on October 13, 2013, Sunday


Budget 2014 is under watchful eyes as the nation’s fiscal deficit needs to be addressed

Current account surplus is likely to narrow further
All eyes will be glued keener than ever to Budget 2014 on October 25, fresh from a ratings downgrade to ‘negative’ by Fitch Ratings on July 30.

The Malaysian government is under pressure to address the weaknesses in its public finance. This balancing act has never been more crucial as Malaysia hopes to find the right point between addressing fiscal needs and retaining public support along the way.

The country is facing persistent fiscal deficits and high government indebtedness amid a falling current account surplus in its balance of payments, explained Fitch Ratings after the downgrade.

“Malaysia’s public finances are its key rating weakness. Federal government debt rose to 53.3 per cent of gross domestic product (GDP) at end of 2012, up from 51.6 per cent at end-2011 and 39.8 per cent at end-2008,” the agency forewarned.

“The general government budget deficit (Fitch basis) widened to 4.7 per cent of GDP in 2012 from 3.8 per cent in 2011, led by a 19 per cent rise in spending on public wages in a pre-election year.

“Fitch believes it will be difficult for the government to achieve its interim three per cent federal government deficit target for 2015 without additional consolidation measures.”

Fitch also anticipated risks even to the achievement of the agency’s 3.5 per cent deficit projection, as this already factors in one percentage point of GDP of spending cuts. This would leave Malaysia’s public finances more exposed to any future negative shock.

Tough, but thoughtful decisions

CIMB Group Holdings Bhd (CIMB) chief economist Lee Heng Guie pegged the Budget to be a ‘watershed moment’ for the government, with hopes of a five-pronged strategy to be laid out in Parliament on October 25.

“Budget 2014 is arguably the most anticipated budget in recent years,” Lee stated. “Faced with the risk of sovereign rating downgrades as investors fret over the prospect of twin deficits, Malaysia’s current fiscal and debt situation means that Prime Minister is tasked with making some necessarily tough but thoughtful decisions.

“We expect the essence of Budget 2014 on October 25 to bring about a responsible fiscal stance, putting the country’s budget deficit and debt on a firm downward trajectory.

“There is no question that Malaysia has reached a turning point given its fiscal challenge amid the risk of sovereign rating downgrades and investors’ focus on the vulnerabilities of the domestic and external sectors at a time of retrenchment of foreign capital, no thanks to the Fed’s potential tapering.”

Lee expect the government to target a fiscal deficit ratio of 3.5 per cent of GDP for 2014 (estimated four per cent in 2013).

Real GDP growth is estimated at 4.5 to five per cent for this year and 4.5 to 5.5 per cent next year, backed by strong domestic demand and a moderate pick-up in external demand.

Hoping for substantial fiscal reform measures

Meanwhile, local audit, tax and advisory services player KPMG Malaysia hopes the upcoming Budget 2014 will contain substantial fiscal reform measures aimed at reducing the country’s current deficit.

“Presently, the country has a wide lower to middle income group and aside from macro measures pertaining to fiscal reform, we also wish to see Budget 2014 meeting the needs of the average man on the street,” said Mohamed Raslan Abdul Rahman, managing partner KPMG Malaysia.

“In doing so, there is a greater necessity for the budget to address the growing social costs and distribution which range from the inequality of income to opportunities and environmental degradation for economic growth.”

Implementing tough economic reforms would be necessary to maintain commitment to address the unbalanced tax structure and reducing unsustainable subsidies coupled with a budget deficit position inherited from the past.

The government needs a Budget that looks into a fair and equitable distribution of benefits for national growth; that is not only fair but is also seen to be fair. The welfare of the majority amongst all race, ethnic groups and particularly the minority and lower income groups should be given emphasis for the development of the ‘rakyat’ as a whole

With public debt expected to be around RM546billion or 53 per cent of GDP by end 2013, fiscal reform measures should encompass more than mere subsidy reduction. In addition to the recent implementation of higher fuel costs and extra non-tax revenues, revamping the subsidy system to reach targeted groups are some of the reforms required.

The country’s 12 National Key Economic Areas (NKEA) ranging from Oil and Gas to Financial Services were designated to propel the country towards a high-income economy.

KPMG Malaysia expects that Budget 2014 will continue to focus on private investment growth and incentives for high growth industries such as the financial services, healthcare and ICT sectors, thus contributing to overall economic growth.

Raslan commented, “As the federal debt level inches to 55 per cent of the GDP, finding ways to fix the debt issue and ensuring that proper system and governance is in place would be crucial.

While honest discussions towards forward-looking tax reforms would be a silver lining to the federal debt issue, firm approaches to tax reform is required.

“One example is looking at funding of major infrastructure projects beyond just foreign direct investment. Creating public private partnerships to fund such large scale projects is a policy which is easier to implement as organisations with strong cash bank has the capacity to affect positive outcomes.”

With stronger financial infrastructure coupled with good corporate governance, sustainability and transparency, Malaysia will be able to attract more foreign direct investment.

“Tax reform is an important issue that is generating global discussions. The need to reduce the problem of non-compliance and boosting tax administrative efficiency to enhance revenue collection is immensely critical.

“The rising middle class and moreconfident urban population in Malaysia demands greater transparency from the government; they want to know how contracts are given, social aids are allocated, accurate and transparent reporting.

“The government should adopt the approach on addressing tax morality issues to restore the country’s fiscal position and reestablish trust and confidence between the government and civil society,” Mohamed Raslan concluded.

Anticipated sectoral impacts from Budget 2014

Consumer segment

“Our concern remains that the proposed GST and subsidy rationalisation programme (which are likely to be among the key topics discussed in the Budget 2014) could introduce further cost inflationary pressures that would compress margins.

“Should the companies under our coverage fail to shore up margins in seasonally stronger 2H13, we may have to downgrade the consumer sector from our current neutral rating,” highlighted Kenanga Research.

“Having said that, we see selective stocks that may in fact benefit from a higher cost inflationary environment.”

Continued boosts in construction

For the construction sector, Kenanga Research analyst Iqbal Zainal anticipates for Budget 2014 to announce value-for money projects.

“As the government is addressing the fiscal position, we are not expecting any new big mega projects to be announced in the Budget 2014. Nonetheless, the government indicated that it will announce ‘value-for-money spending initiatives’ during the upcoming Budget 2014,” he explained.

This, he said, was based on the recent press report quoting the Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah.

“We also believe that the government will continue to announce public-private partnerships or private finance initiative projects in Budget 2014 as these projects are not entirely funded by government but give higher multiplier effects to the economy.

“Furthermore, we also expect allocations for East Malaysia’s basic infrastructure projects to continue to be announced in the Budget 2014 as to accommodate the growing industrial activities in the region.

“Should the government impose GST, there could be inflation risks due to higher building material prices and hence, margin compression. Nonetheless, we believe contractors have already fixed the price with the building material suppliers before the project started (based on quotations).

“Also, in terms of newly secured contracts, we believe, going forward, the master pay (clients either Government or Private) will absorb the additional costs arose from GST.”

Property players anticipate hike in RPGT

Increased bank lending to broad property sector
“For the upcoming Budget-2014’s potential impact on property sector, we are only expecting real property gains tax (RPGT) hikes of 30 per cent from 15 per cent for properties sold within two years, 15 per cent from 10 per cent for properties sold within three to four years, 10 per cent remains unchanged for properties sold in the fifth year and zero RPGT for properties sold in the sixth year onwards,” Kenanga Research elaborated.

“We believe this has been largely been discounted and priced-in somewhat, but we do expect some slight knee-jerk reactions for a couple of weeks post announcement.”

The research firm does not expect any other overly harsh measures (such as stamp duty hikes, banking measures) as these may have severe repercussions on the economy. Historically, the government only implements one drastic fiscal measure within a year.

“This also applies to Bank Negara Malaysia’s (BNM) measures and so far, we have already seen one which is the reduction of mortgage tenures to 35 years from 45 years in July 2013. We also expect more measures on increasing affordable housing supply to be announced in the Budget.”

If GST is implemented in 2015, expect pre-implementation ‘panic buying’ in 2014, Kenanga Research is assuming no major changes in the banking sector policy affecting the sector, based on experience from other countries seeing such trends in anticipation of future cost push inflations on asset

prices. This, it added, will be beneficial to developers’ 2014 sales, as financing terms for the primary market is more favourable compared to that of the secondary (like DIBS, rebates, LTVs, lending rates, property valuations and so forth)

“We do expect developers to front-load their launches in 2014 on the back of higher demand, which will be a big booster to future earnings,” it added.

“However, if the GST implementation timeline is not announced during Budget-2014, we may revisit our stock/sector calls.”

F&B sub-sector

“For the F&B sub-sector, we expect inflationary pressures to stem from not just the GST, but also the government subsidy rationalisation programme which could impact the prices of imports and raw materials (taxed at the standard rate),” explained Kenanga Research.

“At the same time, increases in the prices for energy items could also have a spill-over effect on not just company earnings, but also company’s revenues as consumers’ disposable incomes erode.

“This comes on the backdrop of potential continuation of its rich valuations de-rating, absence of any earnings surprises, and appreciation of the US dollar against the ringgit.”

Oil and gas to see muted moves

High dependence on oil-related revenue
(estimated 31.1 per cent of total revenue in 2013)
Meanwhile, the oil and gas (O&G) industry believes the Budget 2014 will potentially be a non-event for the sector. Kenanga Research affirmed that the downstream segment was the main beneficiary in the previous Budget 2013.

Previously there were two initiatives proposed.The first was an investment tax allowance of 100 per cent for the period of 10 years for qualified companies that invest in refinery activities on petroleum products.

The projects include the Petronas Refinery and Petrochemical Integrated Development (RAPID), oil and gas storage Terminal in Johor, Regasification Plant in Melaka as well as oil and gas terminal in Sipitang, Sabah.

The second initiative was the Global Incentive for Trading (GIFT) programme will be enhanced with a 100 per cent income tax exemption on statutory income for the first three years of operations for LNG trading companies.

Commodity trading approved under GIFT will be extended to include other commodities such as agriculture, refined raw materials, base minerals and chemicals.

“However, given the turn of events, unless there are further positive updates for the project, we foresee muted impact from any initiatives proposed in the coming Budget 2014.”

Neutral stance on retail sub-sector

Kenanga Research also maintained a neutral stance on the retail sub-sector and continued to be cautious on its earnings prospects.

“While the 4Q13 would see more outlet expansions, most industry players are still cautious on their outlook and prospects for the quarters ahead. This comes amid signs that the selective spending habits of consumers have become the new paradigm,” it stated.

“Nevertheless, we favour multi-level marketing (MLM) companies which amid a challenging retail environment would attract more participation by the low-middle income group. We anticipate the MLM segment to deliver decent earnings growth in addition to the high dividend yields of more than five per cent.”

Minimal impact for planters

Still soft CPO and crude oil palm outlook in 2014
Another sector expecting minimal impact from Budget 2014 is the plantations sector, says Kenanga Research analyst Alan Lim.

The only impact that could be expected is some allocation provided to encourage biodiesel production locally in Malaysia.

“Recall that the Malaysia government has targeted to implement B5 programme nationwide in July 2014 upon which palm biodiesel consumption will be increased to 0.50 million metric tonnes (mt) annuall – from 0.25 million mt in 2012,” he explained.

“We also also believe some allocations will be made for oil palm replanting programme which are aimed to increase fresh fruit bunch yield to 26.2mt per hectare by year 2020. However, public-listed planters would not benefit as these are mainly targeted at smallholders.”

Should the GST materialise, Lim believed it will increase the overall CPO cost of production (CP) due to expected rise in transportation cost of about 15 per cent of total cost.

However, he added that fertiliser cost (30 per cent of total cost) and labor cost (25 per cent of total cost) should not be affected.

“Hence, we think the increase in total CPO CP should be manageable at about two per cent. We also expect no impact on CPO prices which is influenced more by global demand and supply (instead of local factors).”

GST to burden REITs


BURDEN ON TENANTS: As for office or industrial REITs, Kenanga Research said the bigger burden will also be on tenants who would be required to pay GST on rental. — Bernama photo

With the strong possibility of GST in Budget 2014, this will indirectly impact tenants and suppress strong rental reversions for real estate investment trusts (REITs).

“Our house strategist anticipates the announcement of GST implementation by mid-2014 to early-2015,” outlined Kenanga Research.

Should GST be implemented, the research firm believed the biggest impact of GST will be on the end user of the product/service as it is based a ‘pass on mechanism’.

“We expect a short term decline in consumer spending for our retail Malaysian REITs as soon as GST is implemented, which may squeeze retail tenants in shopping malls post implementation, thus limiting strong rental reversions for retail REITs such as CMMT, Sunway REIT, KLCCSS-Suria KLCC in the future,” it forewarned.

“This may nibble into our future earnings estimates as tenants operating costs are expected to increase.”

As for office or industrial REITs, Kenanga Research said the bigger burden will also be on tenants who would be required to pay GST on rental.

Similarly, this may have implications on rental reversions, not to mention the pressure of oversupply of offices in Klang Valley will limit rental reversion opportunities.

Additionally, REITs also pay a six per cent service tax to service providers (such as cleaning and maintenance), and this will eventually be replaced with the GST, namely no material impact to earnings on this front.

KLCCSS is also exposed to the office segment although a large chunk of it is based on fixed step-ups over a long-term lease such as Petronas Twin Towers and Menara 3 Petronas office.

“We believe the effects of GST will be less detrimental on office or industrial REITs as their tenants are locked in for longer lease periods, and have lower step up rates compared to heavier retail REITs such as Sunway REIT and CMMT, providing more earnings resiliency.

“At this juncture, we believe there is no direct impact on REITs. However, we do foresee an indirect impact on tenants with an increase in operating cost, which may suppress rental reversions going forward.

“We are maintaining earnings estimates for now and will be monitoring the situation closely. We have provided a sensitivity analysis for the REITs under our coverage.”

Education sector

In order not to burden the lower income group, certain basic foodstuff (such as rice, sugar and flour) and essential services such as private education are not subject to GST, according to the Royal Malaysian Customs Department.

“Hence, we believe that the potential GST implementation may only have a muted impact on the education industry,” explained Kenanga Research.

“Nonetheless, in the long-term, we believe the education sector may potentially undergoes a challenging period as the drastic rising public cost of living post-GST may somewhat indirectly influence the market to look for cheaper education options such as distance learning programmes.

“Similar to last year, we believe the government will continue to focus on strengthening education and human capital development in the upcoming 2014 budget, in line with the official launch of Malaysia Education Blueprint 2013-2025 by the Ministry of Education recently.”