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Income tax reduction unlikely in near term after GST implementation
KUALA LUMPUR: Any reduction in personal and corporate income tax is unlikely in the near-term following implementation of the goods and services tax (GST), due to uncertainty in the global and local economies, as well as adaptation of local businesses to the new tax structure.
Taxand Malaysia Sdn Bhd chairman Dr Veerinderjeet Singh said Malaysia is currently in a period of uncertainty, and it was not the right time to reduce income tax, even with the GST in place.
"I hold the view that you should not be reducing the income tax now. If you look at the statistics, we are having a fiscal deficit without a booming economic climate, while expecting slower growth this year.
"It is better to wait and clear the other issues first, such as reviewing the incentives structures for the future," he added.
He told reporters this after presenting a paper, "GST: The Good, The Bad and The Ugly", at a seminar organised by the Malaysian Economic Association here today.
Veerinderjeet said lower income tax would attract more businesses to Malaysia, but due to the current global economic situation, the desired effect is unlikely to happen or might be less than expected.
He said while pursuing the 2020 vision, the country still lacks a tax system that is equivalent to the developed nations.
"We need to look at that and not do things on an ad hoc basis (such as) reducing it (income tax), because the people want it.
"You (government) have to reduce income tax, if you think in the long-term it will benefit the country," he added.
Asked about the GST, he said it would probably take effect in 2015 if implemented, with the necessary procedures in place on educating the people, which takes at least a year.
"Eventually, if the GST is introduced in 2015, you need to give it a couple of years to stabilise and subsequently, you can increase the rate and bring down the income tax," Veerinderjeet said.
It is anticipated that the GST may be announced in the Budget 2014 on Oct 25.
The GST was first tabled in Parliament on Dec 16, 2009, to replace the existing Sales Tax and Services Tax, but withdrawn last year for amendments.
The broad-based multi-staged consumption tax or value added tax is imposed on the supply of goods and services and is aimed at curbing tax evasion. --BERNAMA
Najib Sees Malaysia Escaping Fitch Rating Cut: Southeast Asia
Prime Minister Najib Razak said he believes that Malaysia can avoid a cut to its credit rating while the government will try its “level best” to prevent a breach of its self-imposed sovereign debt ceiling.
“We will manage it,” Najib said in an Oct. 11 interview in Putrajaya, the country’s administrative center near Kuala Lumpur. “We’re very closely monitoring how we manage our macro position as well as our fiscal and debt to make sure that we will not be downgraded.”
Najib raised subsidized fuel prices for the first time since 2010 and said he’d delay some public projects after Fitch Ratings cut Malaysia’s credit outlook to negative in July, citing rising debt levels and a lack of budgetary reform. The country, which has a long-term foreign-currency denominated rating of A- at Fitch, has run annual budget deficits every year starting in 1998.
At 53.3 percent, Malaysia’s debt-to-gross domestic product ratio is the highest among 12 emerging Asian markets after Sri Lanka, according to data compiled by Bloomberg. Moody’s Investors Service said last month the budget gap may exceed Najib’s target of 4 percent of GDP this year and warned fiscal targets will become “increasingly out of reach” unless further measures are taken. Moody’s rates Malaysia government bonds A3 with a stable outlook.
The government will further cut state subsidies, broaden its tax base and manage spending “prudently,” said Najib, 60, who is also finance minister, without elaborating. Cabinet will meet before the 2014 budget is released Oct. 25 to decide if there’s enough public support to introduce a goods and services tax, he said.
“We are quite positive on Malaysia,” Enrico Tanuwidjaja, a Singapore-based economist at Nomura Holdings Inc., said by phone yesterday. “They are on a fiscal consolidation path and they will boost the revenue base if the government can push through the GST in the coming budget. A sub-3 percent fiscal deficit could happen in 2016, if not in 2015 as per the official aim.”
The ringgit has fallen 3.9 percent this year, the fifth worst performer among 11 most traded Asian currencies tracked by Bloomberg. The currency could gain over time if the nation’s fundamentals remain strong, central bank Governor Zeti Akhtar Aziz said in an Oct. 12 interview with Bloomberg News in Washington.
“We believe that, over the medium term, yes, it should reflect underlying fundamentals, and if the underlying fundamentals remain strong, then over time it should be an appreciating trend,” said Zeti, predicting stronger economic growth in 2014.
The government earlier planned to introduce a 4 percent GST by 2011. It hasn’t said what the rate may be if it now goes ahead.
“We are one of the very, very few countries in the world which doesn’t have a GST,” said Najib, who was returned to power in a general election in May with a reduced majority as his coalition lost the popular vote for the first time. “But there are challenges. Anything to do with any new form of tax, like consumption tax in Japan, carbon tax in Australia, these are big issues that cannot be easily decided.”
The government will “try our level best” not to go beyond its debt ceiling of 55 percent of GDP, said Najib, a U.K.- educated industrial economics graduate. If Malaysia can achieve 5 to 6 percent GDP growth “we should be able to manage the debt ceiling,” he said. “The weakening external global economy is of concern to us.”
Southeast Asia’s third-largest economy withstood faltering overseas demand in the past year as Najib gave handouts to voters and boosted investment ahead of the May vote. GDP expanded more than 4 percent in each of the 15 quarters through June 2013.
“This year we should be able to get somewhere between 4 to 5 percent” growth, the prime minister said. “I think probably slightly beyond 4.5 percent. That’s the best estimate that we have currently.”
With state guarantees added to public debt the government’s credit exposure was 70.2 percent of GDP as of the end of the second quarter, up from 66.6 percent a year earlier, Bank of America Corp said in a report on Sept. 17.
“It’s not so much the level of debt, it’s the ability to pay,” said Najib. “Fortunately, most of our debts are long-term debts and are domestic debts, so we think we will be able to manage it.”
1Malaysia Development Bhd., a sovereign wealth fund better known as 1MDB, has accumulated total bonds and outstanding loans of about 30 billion ringgit ($9.4 billion) since it was formed four years ago, according to data compiled by Bloomberg.
The Kuala Lumpur-based fund has acquired 12 billion ringgit of energy assets in the last two years. It is also building a new financial district in the capital called Tun Razak Exchange, named after Najib’s late father, Malaysia’s second prime minister.
“It has borrowings, but its total assets exceed its borrowings,” Najib said of 1MDB. “We’ve got a few projects and programs in mind that will really strengthen 1MDB.”
The fund is talking to potential U.S. investors about venturing into solar energy, said the prime minister, who is chairman of the fund’s advisory board.
1MDB came under scrutiny in parliament in July after hiring Goldman Sachs Inc. to help manage $6.5 billion of bond sales to fund expansion. The U.S. bank made about $500 million in commissions and trading gains, a person familiar with the matter said May 9.
“If you talk in terms of international scale of fees, I think that’s within a margin,” said Najib. “Goldman Sachs have got certain ability and name in the market and they are able to deliver what’s been required. In terms of that relationship, 1MDB is quite happy with what Goldman Sachs has done.”
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