Sunday, October 25, 2009

Comments On October Budget




As a Malaysian business and finance site, I guess I am expected to post some comments on the Budget. You may or may not like Najib, but as a Finance Minister, I think he has the best grasp of economic and finance issues compared to the Finance Ministers we have had for the past 20 years. Normally we see funds being thrown about and that's that. He has obviously been well advised, most of the measures are well defined with timelines and deadlines.

The strategy is to focus more on what we do well, what we have inherent strengths. The overall bigger picture is to ensure higher incomes for all - i.e. moving up the value add curve. The budget was very responsible, Najib could have taken the easy route and spend and spend with abandon. There are still a lot issues naturally if we wish to move up the value curve - the most pressing has to be the subsidy mentality. We need a complete overhaul of how we view the subsidy, we need to set timelines to gradually eradicate it except for the most basic and necessary products - at the same time, these removal / reduction of subsidies need to be balance in that the most affected will not suffer too much.

The overall budget will be taken positively by most foreign research houses, it provided strong soundbites, says the right things. I would say that the stock market should surprise most with a good performance.


* Government to reduce maximum individual income tax rate from 27% to 26% for chargeable income group exceeding RM100,00. Personal relief increase from RM8,000 to RM9,000 in 2010. This means that each individual taxpayer will enjoy an increase of RM1,000 in disposable income.* Govt to allocate RM899m for tourism industry in 2010, attract more participants from UK, Japan, Korea under Malaysia, My Second Home. (The man on the street always on the lookout for more take home pay. While that is a narrow perspective, more cash is always good, and judging from our high-ish tax rates compared to the rest in the region, this is a good move.)

* Govt to speed up implementation of high speed broadband at total cost of RM11.3b,of which RM2.4 billion is from government and RM8.9 billion from Telekom Malaysia. (Very important. It smacks at our overall competitiveness. Crucially there is a dateline to rollout in KL by March next year, and the rest of the country a gradual rollout by 2012.)

* Govt proposes individual taxpayers be given tax relief on broadband subscription fee up to RM500 a year from 2010 to 2012. (Good move.)

* Govt to allocate RM9b for infrastructure, of which RM4.7b for road, bridge, water, sewerage projects and RM900m for rail. (Good addition to the "earlier stimulus package", did not go overboard.)

* Govt to look into micro insurance, takaful coverage. Premiums from as low as RM20 per month for small traders, coverage from RM10k to RM20k.

* Flexible brokerage sharing between stockbrokers, remisers. Flexible brokerage at 40% for remisers. To be fully liberalised in second stage by Jan 1, 2011. (Will allow more aggressive brokers to snatch remisiers. Expect Singapore houses to be more aggressive here.)

* Allow 100pct foreign equity stake in corporate finance, financial, planning companies from at least 30pct local stake now. (Good move although many have been doing these deals out of the country anyway.)

* For upstream petroleum companies, income tax for yr assessment 2010 based on 2009 income can be paid over 5 years. (Allows for better reinvestment and cost/revenue matching.)

* Govt to impose 5pct tax imposed on gains from disposal of real property from Jan 1, 2010. However, it will be retained for gifts between parent and child, husband and wife, grandparent and grandchild. This tax exemption will also be given on disposal of residential property once in a lifetime. (Property companies will not be pleased with the reintroduction of RPGT, but its a pre-emptive move, considering the "better leverage to borrow from Account 2 of EPF" for purchases. 5% is fair and will keep a lid on things, a hint on things that Bank Negara may be keeping rates low for a few more months. Low rates, which is necessary to keep ample liquidity in the system, is targeted to boost lending to business and create/save jobs. An indirect nasty would be channeling it to push property prices higher - the RPGT is to keep things on a more equal footing.)

* Govt proposes RM50 service tax on each principal credit card, charge cards, including free cards. RM25 for supplementary cards by January. (Could AEON Credit be affected, guess so, we really need just one card people, any more than that is license to fuck ourselves up.)

* Govt to impose RM10,000 for each approved permit to open AP holders, for distribution of AP in 2010. (Not good enough, needs to place a timeline to scrap it, say within 3 years, and the levy needs to be closer to market price of RM30,000.)

* Govt to implement fuel subsidy management system in early 2010, using MyKad, to ensure targeted groups will benefit.

* Govt to reduce maximum individual income tax rate from 27pct to 26pct, personal relief increase from RM8,000 to RM9,000 in 2010. (Cannot complain but we need the top rates to come down some more to incentivise entreprenuers. If the money makers are not making money, the ones below will not do well.)

* Govt to launch scheme for EPF contributors to use current, future savings in account 2 to get higher financing to buy higher value house or additional houses. (Need deatils but generally positive.)

* Govt to issue 1Malaysia sukuk totaling RM3b, for Malaysian aged 21 and above. 3yr maturity, with 5pct annual rate of return

* 1Malaysia retirement scheme for self-employed, run by EPF. For every RM100 contribution, govt to contribute 5pct, maximum RM60.

* Personal tax relief raised to RM7,000 from RM6,000 now for EPF contribution and life insurance premiums. (We should have a timeline, RM1,000 increase every year till RM10,000.)


p/s photos: Noon Wongsawan

8 comments:

Present Value said...

Dali,

Thank you for the synopsis.

Just a note on the RPGT - Real Property Gain Tax of 5% on gain from disposal W.E.F. 01.01.2010:-

1. It is reverted to the old tier-rate, plus all > 5th yr onwards disposals will now be subjected to the 5% tax, which was ZERO rated until 31.03.2007 when the RPGT was all "suspended".

2. Interest expense on the cost of bank loan to finance the property WILL NO LONGER be Tax Deductible from 01.01.2010 in computing the Gain from property disposal.

I have further details in my blog:
http://marvelous-basics.blogspot.com/2009/10/malaysia-budget-2010-proposals-rpgt-not.html

Ooi Beng Hooi said...

"Personal relief increase from RM8,000 to RM9,000 in 2010. This means that each individual taxpayer will enjoy an increase of RM1,000 in disposable income."

I think it is only RM 1000 increase in reduction of taxable income. The increase in disposable income is not RM 1000, but RM 260 at maximum (at 26% tax rate), depending on one's tax bracket.

Eric Low said...

Service tax for credit card is RM50. additional burden to malaysia rakyat. Foreign worker laughing at malaysia rakyat. Why don't define as service tax according to title such as Doctor title charge RM100 per credit card, Dato Charge RM150, Datuk / Datin Charge RM200, Datuk Seri / Datin Seri Charge RM250, and so on until Tun level? Those with title can afford to enjoy lifestyle, then no problem to paid higher price of service tax on credit card.

Eric Low said...

Service tax for credit card is RM50. additional burden to rakyat. Froeign worker laughing at malaysia rakyat. Why don't define as service tax according to title such as Doctor title charge RM100 per credit card, Dato Charge RM150, Datuk / Datin Charge RM200, Datuk Seri / Datin Seri Charge RM250, and so on until Tun level? Those with title can afford to enjoy letsure lifestyle, then no problem to paid higher price of service tax on credit card.

solomon said...

In term of the personal income tax, I still prefer the lowering of car or even house price, which are rocketing each month. Having the RGPT on the properties would not help either.

Guess what, I have to buy more insurance to insure my interests in future.

Marco said...

The only setback is the company tax is not revised down.

soonyeah said...

After deducting the new RM50 per credit card tax, the Rm260 disposable income might become deficit.

CJ said...

Having more than one credit cards can be advantages since different credit card companies offer different benefits provided the user keep his spending in check and pay off all outstandings when they are due.