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The Gross Domestic Product (GDP) for Malaysia is expected to close at 5% to 5.5% for 2011 and 5% to 6% in 2012. Wow!! a rate that is higher than the world's average GDP growth
ouple of days ago the nation witnessed another round of budget presentation by Prime Minister, Dato' Sri Najib Razak (Najib). Many commented that this budget is a safe election budget. Najib referred the budget as Wellfare to "Rakyat" (Citizens) by easing inflation, a theme very much supported by his National Transformation programmes. Najib started the budget presentation with promising statistics. The Gross Domestic Product (GDP) for Malaysia is expected to close at 5% to 5.5% for 2011 and 5% to 6% in 2012. Wow!! a rate that is higher than the world's average GDP growth (in fact higher than Singapore). I wonder how does the mathematics work. If I am not mistaken, the first half of 2011 registered GDP growth of 4%. So, to achieve 5% for the full year, do we have to touch 6% to 7% for the second half? Is there enough volume in the market to create this 6% to 7%? I certainly hope so. Let us have faith and assume that we will close at 5% to 5.5%.
"... harga beras sekilo gram tanpa subsidi sebanyak RM2.40 kini RM1.20 selepas subsidi......." Najib Razak on 11 Oct 2011 during 2012 Budget presentation
The budget is a socialistic budget for which Najib did mention that such is a reflection of a "Negara Kabajikan" (Socialistic Country). To combat rising prices, as evident by his inflation statistics of 3.5% in 2011, Najib proposes an anti-inflationary budget. He commented "... harga beras sekilo gram tanpa subsidi sebanyak RM2.40 kini RM1.20 selepas subsidi......." (Prices of rice per kg of RM2.40 and RM1.20 without and with Government subsidy respectively). It is quantified that the Government will have to spend RM33 billion to fund all sorts of subsidies. Some of the other examples shared are (in the order of Prices before and after Government subsidies respectively):
1. Sugar at RM2.50/kg to RM2.30/kg
2. Cooking oil at RM4.75/kg to RM2.50/kg
3. Flour at RM1.90/kg to RM1.35/kg
4. Petrol (RON95) at RM2.95/litre to RM1.90/litre
5. Diesel at RM2.26/litre to RM1.80/litre
6. Rice at RM2.40/kg to RM1.20/kg
Many incentives were revealed with Financial Institutions having the most significant impact. I guess that is logical given that the industry contributes 48% to the GDP (or so he claimed). Specific sub-industries are targeted to benefit from the budget. Some of the salient points are:
1. Double tax deductions for human capital efforts: Double deductions for tax allowed for internship, scholarships and career fairs that meet certain qualifying criteria.
2. Tax deductions on previously disallowed business expenses: Many small businesses that pay franchise fees (e.g. Papa Rich) can now claim for tax deduction. We will see more McDonalds?
3. Tax exemptions for selected businesses: 70% to 100% of income from selected businessses will enjoy tax exemption status. They are 4 or 5 Star Hotels, Industrial Design Services, Shipping and Private/International Schools.
4. Bringing back home Malaysian professionals from abroad: Returning experts will enjoy discounted income tax rate as low as 15% for 5 years with automatic Permanent Residence (PR) status for their foreign wives and kids. Who are professionals? Well, it's a wide definition but a parameter known is that their annual income should not be lower than RM106,000.
5. Promotion of new technologies: Hybrid and electric automobiles will be exempted from excise duties or import duties. For example, Honda Insight that used to cost RM109,000 will now be RM98,000. Toyota Pius that used to cost RM175,000 will now be RM139,000.
6. Caring for old age: Relief for retirement funds in personal income taxes has been increased from RM7,000 to RM9,000, consistent with the increase in employers' contribution to Employees' Provident Fund (EPF) from 12% to 13% for those earning RM5,000/month and below.
7. Wellfare of taxi drivers: Taxis or hired cars now will be exempted from excise duties and road taxes provided locally manufactured. In addition, cheap loans at 2% per annum given to replacement cars manufactured locally.
8. Combatting short term profit making in realty: Previously Real Property Gains Tax (RPGT) of 5% is charged if disposed properties are aged 5 years and below. Now, an additional increased rate of 10% is applied if the properties are aged 2 years and below. 5% charge is retained for the age bracket 2 to 5 years. However, if the change in ownership is within family members, full exemption granted.
9. Leaner costs for legal agreements: Stamp duties are exempted for loan agreements for Skim Perumahan Rakyat 1Malaysia (PR1MA) (Cheap Government loan for first time property buyers). Stamp duties are also exempted for loan agreements for micro finance and professional services funds (mainly for small and medium enterprises (SME)).
10. Dedication to refund taxes: The Inland Revenue Board (IRB) will pay interest of 2% p.a. for late refunds to the public. The catch is, if you are audited and errors are found in your tax returns, they charge you interest of 10% p.a. !! haha.... IRB will be more strict now. In 2011 alone they are expected to collect RM3 billion worth of penalties. Tax audits will be increased although time bar for documentation for audit will be reduced from 6 years to 5 years.
It is expected that the new budget will increase Government's revenue by 8%. Out of the RM186.9 billion, RM68.8 billion will come from tax collection, a target (KPI?) that will definitely put IRB at work to stress general public particularly those who are incompetent in filing their tax returns. Be a good citizen and file in your tax returns honestly.
The much awaited verdict on Goods and Services Tax (GST) was not revealed. Perhaps the time is not right for the Government to introduce an unfavourable scheme to avoid emotional response from general public that could impair their mental judgement when voting in elections soon to come. Consequently, no reduction in corporations tax and personal income tax was proposed. Perhaps when GST is being implemented, the wide-based tax collection will allow reduction in corporations tax and personal income tax quite significantly. A day subsequent to the budget release, KPMG, in their 2012 Budget Summit predicted that once GST is implemented, corporations tax may be reduced to a much lower level probably close to 20% (currently 25%).
If I am not mistaken, Najib ended his budget presentation with political sarcasm on "Negara Kebajikan" (Socialistic Country) that the oppositions have been preaching... something along the lines of "... Kerajaan Barisan Nasional sudah lama mengamalkan konsep Negara Kebajikan....."
"... Kerajaan Barisan Nasional sudah lama mengamalkan konsep Negara Kebajikan....." Closing by Najib Razak on 11 Oct 2011 at 2012 Budget presentation
* kopihangtuah
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