Wednesday, October 10, 2018

Why Capital Gains Tax Should Not Be Implemented


I have to reiterate why a Capital Gains Tax is a very bad idea for Malaysia.

Unique traits of Malaysia:
a) Very open economy


b) Ringgit has been weak, which actually has helped plenty of exporters but they are being very quiet about it
c) There are very very few safety nets for Malaysians unlike many developed countries, which means we should not overly burden the lower income group
d) We have a very simple tax code, let's not complicate it as its a major plus point for FDI
e) Our stock market has the largest portion of GDP that is listed compared to all the rest of the bourses in the world, that implies that it has a very high multiplier effect for the rest of the economy. Hence efforts must be made to preserve its vibrancy.



 Capital Gains Tax - Categorically no. The entrepreneurial spirit Malaysia is so proud of should never be curtailed, not even with a small capital gains tax. Being an open economy, we must allow the economy to function as freely as it can. This goes back to the (e) factor cited above. 

... in the USA if you sell a stock, you pay 15% (20% for high earners) of any profits you made over the time you held the stock. Those profits are known as capital gains, and the tax is called the capital gains tax. One exception: If you hold a stock for less than a year before you sell it, you'll have to pay your regular income tax rate on the gain - a rate that's higher than the capital gains tax. My gripe is that is you have capital gains tax, then you must also have loss deduction on taxable income ... but that only benefits people with income, what about those with no income (retirees). Please note that the local bourse has one of the highest retail market participation in the world.



The ramifications:

1) A huge amount of liquidity will be sucked out of the system. It will probably take at least 3-5 years for the market participants to get used to the CGT regime.

2) Might be a zero-sum game - You cannot have CGT without a corresponding reduction to taxable income when investors register losses. Who is to say you will get more WINNERS than LOSERS.

3) Cumbersome to report for tax returns and calculations. Do you withhold gains or do we have to save them for year-end? We already can see the problems arising from this.

4) Our local burse has one of the highest levels of retail participation among all global markets. Which is to imply that a substantial number of participants are retirees. You can whack 15% CGT on their stock gains, what about when they make losses? They have no other taxable income to deduct the losses from. Give them a 15% voucher for upcoming funeral services?

5) Like it or not, all markets need some level of "cowboy-ness" in it to generate liquidity and activity. Like it or not, a substantive portion of liquidity in the system emanates from the grey unregulated economy, for want of a better word. You impose CGT, all these funds will disappear overnight... who wants to report all transactions for tax purposes? Imagine a prolonged stock market trading at only 30% of average daily volume ... that would make imposing CGT counter-intuitive and disastrous.

6) Bearing in mind our local market has the highest level of GDP that is listed when compared to other bourses. That means there will be a huge multiplier effect up or down.


Back To The Drawing Board

Instead of imposing 20 new taxes to get a paltry amount... there's no other way than to list Petronas to buy a substantive breathing room for the next 5 years at least. RM200bn will help us a lot. Note - we have to list first before the mega Aramco.

Listing of Petronas - This is a brilliant idea. Last year's profit was RM45bn. Price of oil has climbed steadily this year, can extrapolate profits to RM50bn this year. Using 20x = RM1,000bn market cap. Government sells 20% = RM200bn. Although I am against selling vital resources, but we can get important local funds (PNB, EPF, etc.) to take up 6%, and let retailers take up another 4%. The company pays decent dividends. When our country's balance sheet is better, we may even consider buying back and taking Petronas private later on. 

Tuesday, October 09, 2018

Tread Gingerly On Taxes


Plenty of voices now in anticipation of the upcoming Budget on new taxes to be implemented to help shore up our finances. Malaysia is a very open economy. There are traits to consider before implementing new taxes.

Unique traits of Malaysia:

a) Very open economy
b) Ringgit has been weak, which actually has helped plenty of exporters but they are being very quiet about it
c) There are very very few safety nets for Malaysians unlike many developed countries, which means we should not overly burden the lower income group
d) We have a very simple tax code, let's not complicate it as its a major plus point for FDI
e) Our stock market has the largest portion of GDP that is listed compared to all the rest of the bourses in the world, that implies that it has a very high multiplier effect for the rest of the economy. Hence efforts must be made to preserve its vibrancy.

Nobel laureate Joseph Stiglitz has come up with a few recommendations, so too from a few local and regional economists.

1) Inheritance Tax - Many might not know that the tax was once imposed in Malaysia under the Estate Duty Enactment 1941, which was repealed on Nov 1, 1991. At the time, estate duty was charged at scale rates of 0%, 5% and 10%. It was not applicable to estates with a value below RM2 million, while the highest tax rate of 10% applied to estates valued at over RM4 million.

I do agree that some form of inheritance tax is fair (just have a look at some other countries' inheritance tax. Owing to evolving times, the threshold may have to be lifted. Maybe estate duty should start for assets over RM4m (e.g. 5%) and the highest threshold of over RM10m at 10%.


We cannot be overly creative and try to go for a higher tax number because then the rich will try as they may to hide assets, and may cause a flight of capital.

2) Capital Gains Tax - Categorically no. The entrepreneurial spirit Malaysia is so proud of should never be curtailed, not even with a small capital gains tax. Being an open economy, we must allow the economy to function as freely as it can. This goes back to the (e) factor cited above. 

... in the USA if you sell a stock, you pay 15% (20% for high earners) of any profits you made over the time you held the stock. Those profits are known as capital gains, and the tax is called the capital gains tax. One exception: If you hold a stock for less than a year before you sell it, you'll have to pay your regular income tax rate on the gain - a rate that's higher than the capital gains tax. My gripe is that is you have capital gains tax, then you must also have loss deduction on taxable income ... but that only benefits people with income, what about those with no income (retirees). Please note that the local bourse has one of the highest retail market participation in the world.

3) Property tax for people/companies with large properties - Again no. Same reasons as above. This goes back to the (e) factor cited above. 

4) Carbon Tax - I do not think our energy producers are at an efficient enough level to stomach that. Plus I believe it will just be passed onto consumers.

5) Property Stamp Duty - Yes, I do think its plausible to raise that from 3% to maybe 6%, but all first home buyers should be exempt from it.

I would venture to add the following:

6) CPO Export TaxCurrently, the CPO export duty structure fluctuates on a monthly basis at between 4.5 and 8.5 per cent. If palm oil prices hover between RM2,250 and RM2,400 a tonne, the tax is 4.5 per cent. If the prices are between RM2,550 and RM2,700 a tonne, planters will be taxed 5.5 per cent.

While producers complain that these are already non-competitive vis-a-vis Indonesian producers, we all need to tighten our belts. I do not see a single listed CPO counter locally suffering losses. As our main export, the 4.5% can be hiked to 6% while the 5.5% could be hiked to 7%.

7) Tourism Tax - The RM10 per hotel room night tax should stay. It is a well known fact that our 4 and 5 stars hotels are the cheapest in whole of Asia. In addition, a per entry tax for tourists should be imposed, say between RM20-30. I do not think that would deter tourism, in particular, looking at the trend of the ringgit for the past 5 years. If people are detered by that, then I don't think those are the tourists we want to have anyway. We have around 26m tourists annually, that could contribute RM520m-780m a year. 


Monday, October 08, 2018

Open Letter To Communications & Multimedia Ministry & MCMC


The back drop:


According to MCMC, TM’s starter pack of 30 Megabits per second (Mbps) before MSAP at RM139 was now priced at RM79, while Celcom’s 40 Mbps starter pack has been reduced to RM80 from RM180, Maxis’ 30 Mbps starter pack now at RM89 from RM139 and TIME’s 100 Mbps starter pack now RM99 from RM149.

Meanwhile, TIME’s package of 500 Mbps was now priced at RM139 while its one gigabit (Gbps) package was now RM199.
The statement also said the implementation of the MSAP and reduction of prices was in line with the government’s efforts to provide high-quality world-class broadband services at reasonable prices.
“The MCMC will continue to work with the Communications and Multimedia Ministry to improve the quality of broadband services in Malaysia,” it said.

Hope you can address the elephants in the room:
a) What about existing subscribers, who form the bulk of users now ... if we allow the telcos to force current subscribers to fulfil their package commitments, do you think that is fair? If you do, please say so in order for us to target our protests. As of now, people seemingly in charge are silent on the most important points.
b) What about underserved areas. It is 2018 already. Many countries already offer countrywide coverage. Many Malaysians in underpopulated areas cannot even get higher speeds' packages because it is deemed not feasible. It is 2018 and still, we cannot get a proper handle on this issue.
c) Why not automatically upgrade all subscribers to the new lower-cost packages; why make everyone's life more difficult, needing to unsubscribe (with penalty) and re-subscribe... WHEN the telcos can operate profitably even with the new cheaper packages with higher speeds, which is to say the telcos are already gouging existing subscribers reaping supernormal profits. Is there no such thing as brand goodwill. All the advertising promoting customer service and these companies great branding and commitment to clients are all "fake news" or lip service?
d) Local telcos already enjoy a monopolistic position with domestic users bearing the brunt of excesses and inefficiencies. Thanks to the prodding by the new government we are seeing some light but just the above pointers already indicate that that is insufficient. Why not let in Huawei or other international providers, if the local telcos find it so hard to please local users. We, Malaysians are already paying way too much for access.

e) The other big quibble not addressed is the reliability of the level of service. We all know that when we subscribe for 100mbps, we will not get that most of the time. Providers will say that peak usage hours will make that untenable. There should be accountability and measurement. For example, there must be a threshold that the said service cannot dip below (i.e. 50% or 60% of speed), and not more than 4-6 hours a day. Something like that should be made available and measured, and providers will be fined accordingly if they cannot deliver their said promises.




Friday, October 05, 2018

Must Watch - Project Gutenberg



It is easy to understand why its called the stylish Project Gutenberg if I tell you its about counterfeiting USD. Its also stylishly a bit film noir. Its at the same time a homage to the 70s and 80s shoot-kill-extravaganza HK gangsters movie genre.


Thankfully its a lot more than just that. Its probably the best role for Chow Yun Fatt has undertaken oohh ... for the last 20 years. Can see a bit of the fire in his eyes still there.




While it is safe to say that NOTHING is really ORIGINAL anymore, one can easily say this movie is about:
20% A Better Tomorrow
10% Face Off
30% Keyser Sosa


The hard part should be for the scriptwriter to wove the backstory and flow of the plots and sub plots, the many plot twists, that towards the end we do not know who is real and who is not.


Very entertaining, also the main reason why despite throwing tons of money China still cannot make a HK style gangster movie. The director Felix Chong Mun Keong is an old hand. 

Rating: 8.5/10

Wednesday, October 03, 2018

Zero-Harm Policy


I love it when people try to spin. The CEO of Lynas pleaded with our new government on the review of the project in Malaysia. IF the operations result in zero harm to the people, the communities and environment... then you should have no problem dumping the waste or processing the waste in Australia. I mean, the land area is many x the size of Malaysia... and I am certain the desert area land price would be cheaper than in Kuantan.

All that plus you have to ship the waste to Malaysia, you can save so much on logistics. So I can only surmise that either its too costly to hire Australians or you want the lowly paid Malaysian workers or foreign workers OR the present regulations in Australia would have made it insurmountable (in terms of cost for safeguarding the project or that the rules totally forbade the existence of such a project).

What makes you think Malaysians deserve to have the project that Australia has definitely rejected. I don't think we are that desperate for jobs.



Salam sejahtera,
My name is Amanda Lacaze. I am the CEO of Lynas and I am writing this letter on behalf of our employees and their families, our contractors, and our hundreds of large and small suppliers.
I am taking this step of writing to you to encourage fairness, objectivity and transparency in any review of Lynas Malaysia Sdn Bhd.
Lynas Malaysia has been producing high quality rare earth materials at our Gebeng plant for six years. Our operations are built on a zero-harm philosophy – zero harm to our people, zero harm to our communities and zero harm to our environment. Independent monitoring confirms we have achieved this. We are compliant with our licence conditions and we work closely with the Malaysian regulators to identify ways to continuously improve our operations.
Through Lynas, Malaysia has gained a significant international profile as a centre of excellence for rare earths production. As the only miner and producer of rare earth products outside China, Lynas Malaysia is an important supplier to many industries including the automotive, electronics, oil and gas and renewable energy industries. Our key customers are in Japan, Europe and North America, all important trading partners of Malaysia.

Friday, September 28, 2018

Last Man Standing


The good Dr speaking without notes for over an hour at Asia Society in New York ... 





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Thursday, September 27, 2018

Trade War & US$80 Oil


I hate to be overly optimistic. Because you will get clobbered when you are not totally accurate. I haven't been writing much about business or stocks since the May elections because we needed things to settle.

1) we needed to know the extent of the mess, which our Finance Minister and his team have done properly so far, let it all out in the open

2) I have said before, should PH won the elections, chances are high that the local bourse will be in the doldrums for at least 6-12months. Even so, knowing full well I will lose some money from my portfolio ... I think most of us will RATHER suffer some losses in our portfolio than to see BN re-elected


Things appear to have settled down now. I have mentioned that we needed oil prices to be much higher so that Petronas can sell at higher levels so that the government can request for a special dividend (if needed) to dig us out of the mess by the previous government.

The US$80 oil is as good as one can expect. we just need it to stay above that for at least another 3-6 months.


The Trade War

Didn't write much about the trade war because it could have been over within weeks. Noting the unpredictability of Trump, the trade war went tit-for-tat for months now. Even China is running out of products to impose duties on.

Trying to read Trump's actions, it is likely he won't back down as he is as belligerent as an 8 year old boy who must have his ice-cream or else.

3) the trade war is now so extensive that it would be quite some time to unravel and unwind the entire process, even if both sides wanted to


4) the consequences are huge as the trade war drags on and on... both China and US will be losers, what happens in a prolonged trade war is US businesses dare not invest in new capacity to take advantage of the tariffs, same for China ... the stalemate will result in a dramatic pullback in capital investment from both sides

5) the electoral backlash in the US will be more pronounced as things drag on, farmers and other exporters to China will feel the pinch, which will soon evolve to a loping off of their limbs ... the backlash in China will be muted owing to the different political landscape.. in fact, Chinese citizens will be more willing to suffer rather than see Beijing kowtow to Trump

6) there will be some important midterm elections in the US and that could spell disaster for the Republicans




7) plenty of products will now be served by their substitutes, thus benefiting many emerging market economies, but again no one knows how long it will last, thus nobody is willing to put up any new investments into capacity 

8) China has in the last several months made a contingency plan of what to do. China is increasing trade with India, Africa and the European Union. China will be able to offset most of the damage from increased U.S. tariffs. The real impact will be on U.S. companies which export their own products from China. These items will become more expensive for U.S. consumers

9) no jobs will go back to the States .. If U.S. firms can see no end of the trade war, they will reorganize their supply chains and locate low-cost production in “safe” countries like Vietnam, Malaysia, Indonesia, Mexico, and Peru. They will not move much production back to the United States. Likewise, Chinese firms that buy high-tech industrial inputs from the United States will move some of the production to “safe” countries like South Korea, Canada and Australia. But the Chinese government will strongly encourage Chinese firms to produce many of these inputs at home, even though the cost will be much higher


The Next Trade War Phase

THE US$ - I believe Beijing will have to dump some Treasuries soon if Trump stays belligerent. If that cycle starts, funds should flow to emerging markets away from the US. Even a trickle will be effective for emerging markets.


Conclusion: There is no conclusion. It still fluid. Trump could be impeached. Upcoming midterm  elections could prove disastrous and lead the Republicans to rally against Trump. US$ could dive 10%-20% ... you guess the consequences there.

Tuesday, September 25, 2018

The Probable Cast for The Movie "Billion Dollar Whale"



Was there ever a doubt that this would be made into a movie??!!



(Malaysiakini) Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World co-author Tom Wright has confirmed that a movie deal is in the works based on the book on the 1MDB scandal and its alleged mastermind Low Taek Jho.
“We are negotiating a movie deal at the moment, yeah. There should be an announcement very soon about a movie,” he told a group media interview in Kuala Lumpur today.
Wright, who remained tight-lipped about the details, joked that it would not be produced by Red Granite Pictures.
~~~~~

It would be so much fun to try and guess who will be playing the main characters. Let me take a stab at it:

Meryl Streep can play anybody, any race even ... her turn in Into The Woods makes her a shoo-in for the role of R.

I am sure you are laughing already. Comedian Jason Leong is a dead ringer for JL (alamak, initials pun sama) ... put on another 20kgs, plus he already has the accent right.




This one's a bit hard. Dayo Wong can play LGE, with a more traditional haircut and a bit more Brylcreeem ... he will do a good job.



To me, Kent Cheng is one of the top 3 HK actors of his time. Picture him with solid black plastic rimmed glasses, minus 20kg, you got LKS.



The under-rated Michelle Williams can dress down and play Clare Rewcastle Brown with aplomb.




Ta-dah... the final starring role for N... none other than brilliant character actor Paul Giamatti. His looks is already halfway there. Now learn the accent well.


Ladies and Gentlemen, we have a hit in the making ....



Saturday, September 22, 2018

Moon My Cakes - The Annual Rant!!!




For all the talk of being cultural, the Mooncake festival is one that is disappointing year in year out.


It seems the festival is about, now, which new flavour can we ingest this year. Actually, just look at any restaurant menu, and then try to make it into a moon cake.

There is no respect, there is no tradition left. How about a prawn mee moon cake, how about a putu mayam moon cake? Why not?

 Well, every year I brace myself for what will be the new fangled flavours for mooncakes. Ta-dah ... last year takes the cake (pun intended). Its Angry Birds mooncakes!  I think its a brilliant marketing strategy, its taking China/HK by the proverbial storm. Is that raining bird shit ... no, its just kids throwing their Angry Birds mooncakes in the air for effect. Now we even get Nasi Lemak ones. Damn it, this year we do actually have nasi lemak mooncakes!!!

Each passing year, we get further away from tradition. Is this fusion or variety or just plain stupidity. I am talking about mooncakes. The whole thing marks of a scam.

Who doesn't know that the cost of a mooncake is minimal really compared to their exorbitant selling price. Why do you think almost every restaurant sells them? There must be a global collusion to sell these over priced things - its a Chinese mafia I tell you.

At best, the mooncake festival can be an excuse for family togetherness. The actual reasons and history for how the festival started are pretty flimsy. Its more stuffs of legends and fairytales than rooted in reality. But anyways, since the Chinese culture has no solid God/religion, where everything goes (the world is full of deities and
buddhas as the saying goes), hearsay and stories evolved into things cultural, which in turn becomes tradition, and finally morphs into a marketing extravaganza.



Since it is stuff of legends and fairytales, its not rooted deeply in anything really, and is open for interpretation. It used to be just lotus paste and black sesame. Throw in the egg yolks if you want. NOW you have:
lotus with dried sambal; green tea with pu'er; dragonfruit with blackcurrent; spirulina; the omochis; the ice cream ones; the durian paste; pandan sweet corn; capuccino; yam gingko nut; chocolate strawberry fondue; the various types of skin covers; oreo; chocolate walnut brownie; charcoal powder with wolfberry; Charcoal Infused Mocha Milk Tea; Snow Skin Japanese Potato with Custard; Fragrant Corn with Soft Yolk; Royal Jade Jelly; Nutty Chocolate with Yolk; Snow Skin Raspberry; Bluberry; Snow Skin Silky Vanilla Chestnut; Snow Skin Black Sesame; Green Beans with Cheese; chocolate peanut praline; blueberry blackcurrant cheese; chestnut Japanese jingsa; .... enough already... we are all losing the plot!!! Heck, I can even create an apom balik black sesame eggyolk ikan bilis flat moon cake... its all marketing baby!

Go back to the roots of the tradition. Why do we have Mooncake Festival? Its for family togetherness, its really for the kids ... I remember as kids I loved the festival, the lanterns and candles. I liked that connection, knowing that my dad and grand dad probably played with similar lanterns, similar candles and ate the same kind of mooncakes 50 or 100 years ago. That's the tradition that connects, and the kind you want to pass on to the next generation.





Not that anything about the mooncake thing is true, however, its cultural and it carries values, things we want to pass on - whether the festival is rooted in true events is not material anymore.

Hence, please you bloody marketers,
do not cheapen the tradition. We want the connectivity. I will still want to buy the basic lotus paste or black sesame... and also the baked fish-shapes / pig-shaped mooncake biscuits ... because they all remind me of the past which I longed to remember and the people I do not wish to forget.


Of course, variations is a strong strategy to differentiate in a product/event that has "almost zero veracity" in truth or religious text. You don't find the Catholics changing ONE IOTA of the sacrament through the ages. Hence differentiation will continue cause no one cares, everyone is out to stand out and make money or get the latest "bling".

This year let me give you my HAZE Mooncakes, looks like smog, taste like freshly burnt tropical forest with a strong charcoal aftertaste - happy moonlike festival!!!

Thursday, September 20, 2018

The Doors of Praha


Was in Prague for 4 days. Totally blown over by the artefects and antiquities and the very long historical cathedrals. But what caught my eye over and over again were the doors all over Prague. The designs were elaborate or simple but reflective of the history the place has seen throught history. 

I wish I had more time to segregate the various designs and the era and influences they are from. I took over 100 photos of doors, friends thought I was being silly. I have narrowed down the selection to a more manageable number.

Still a wonder to reflect on them.















































































Why Capital Gains Tax Should Not Be Implemented

I have to reiterate why a Capital Gains Tax is a very bad idea for Malaysia. Unique traits of Malaysia: a) Very open economy b) Ringg...