Bud­get 2019 – the good, the bad and the ugly

The Star Malaysia - StarBiz - - Viewpoint - Com­ment PANKAJ C. KU­MAR

AF­TER a week since the Bud­get 2019 was tabled by Fi­nance Min­is­ter Lim Guan Eng, it is per­haps a bet­ter time to re­flect and re­view mea­sures that were an­nounced and its im­pli­ca­tions.

Judg­ing by the FBM KLCI’s gains of about 7.5 points be­tween Mon­day and Thurs­day, de­spite the fall in the share prices of Gent­ing, Gent­ing Malaysia and Malaysia Air­ports, which blew off al­most 12 in­dex points on the FBM KLCI, the mar­ket can be said to be gen­er­ally re­cep­tive of the Bud­get 2019.

What was good about the bud­get? Well, firstly, in an un­sur­prised move, there was no cap­i­tal gains tax and nei­ther was there in­her­i­tance tax – the two taxes feared by the mar­ket that would jeop­ar­dise in­vestors’ in­ter­est on Bursa Malaysia and along with it, po­ten­tial cap­i­tal flight.

The much taunted hike in cur­rent per­sonal and cor­po­rate taxes were vis­i­bly ab­sent while some new taxes were in­tro­duced and se­lec­tively, oth­ers were raised.

Per­son­ally, I like the idea of the new air­port real es­tate in­vest­ment trusts (REITs) that is go­ing to be es­tab­lished. With a po­ten­tial fund raise of RM4­bil to the gov­ern­ment’s cof­fers based on a 30% eq­uity in­ter­est to be sold, the REITs could have a mar­ket cap­i­tal­i­sa­tion of about RM13.3bil.

This will also al­low in­vestors to have an­other liq­uid, high div­i­dend and growth stock in their books, which will gain sig­nif­i­cant in­ter­est among in­sti­tu­tional in­vestors.

The pro­posal to in­tro­duce de­par­ture tax is not ex­pected to hurt trav­ellers to Asean coun­tries or out­side the re­gion while at the same time al­low­ing the gov­ern­ment to widen its rev­enue base.

The hike in gam­ing taxes was in­deed a sur­prise and an ugly move, es­pe­cially in the quan­tum of the hike for casino du­ties, casino li­cence fees and gam­ing ma­chine du­ties.

While this is steep for Gent­ing as also re­flected on mar­ket’s re­ac­tion to its share price, the bud­get should have gone a step fur­ther to raise taxes on num­ber fore­cast­ing op­er­a­tors, brew­ers and to­bacco com­pa­nies, as sin taxes are the eas­i­est to be tar­geted to raise the gov­ern­ment’s rev­enue.

At the same time, the ef­forts to curb il­le­gal ac­tiv­i­ties should be stepped up to en­sure that the le­gal and li­censed op­er­a­tors have a greater reach for their re­spec­tive tar­get mar­kets.

A lot of mea­sures in the bud­get were re­lated to the prop­erty sec­tor. Firstly, the rise in stamp duty for trans­fer of prop­er­ties worth RM1mil and above to 4% from 3% pre­vi­ously is noth­ing new, as it was also pro­posed in the pre­vi­ous bud­get but was with­drawn due to mar­ket soft­ness.

What the stamp duty hike failed to take into ac­count was dis­tin­guish­ing a Malaysian or res­i­dent buyer against for­eign buy­ers. Per­haps a higher stamp duty should have been im­posed on for­eign buy­ers of 5% for prop­er­ties above RM1mil as well as the in­tro­duc­tion of a seller stamp duty in­stead of a hike in real prop­erty gains tax (RPGT).

The in­tro­duc­tion of a 5% RPGT for prop­er­ties held be­yond five years for in­di­vid­u­als and 10% for com­pa­nies is an ugly move by the gov­ern­ment as it does not dif­fer­en­ti­ate at all very-long-term own­ers of prop­er­ties although there re­mains the once-in-a-life­time ex­emp­tion from this duty upon dis­posal of a prop­erty by a res­i­dent and a Malaysian ci­ti­zen.

The higher taxes can be said to be bad for the prop­erty sec­tor and po­ten­tial buy­ers/sellers, de­pend­ing on the value of the prop­erty and the pe­riod of hold­ing the as­set.

On a pos­i­tive note, a po­ten­tial re­duc­tion of 10% in prices for new homes is in­deed pos­i­tive but, of course, im­ple­men­ta­tion is key as we ob­vi­ously do not want new homes’ gross price to be raised be­fore the 10% re­duc­tion kicks-in, as it has to be a gen­uine re­duc­tion to ben­e­fit all buy­ers, es­pe­cially first-time home buy­ers, and to clear the in­ven­tory of un­sold homes.

As for the peo­ple in gen­eral, the in­tro­duc­tion of a monthly pass for RM100 per month to travel on pub­lic trans­porta­tion is most wel­come. Hope­fully, with this, we will see MRT rid­er­ship in­crease sig­nif­i­cantly as the cur­rent to­tal rid­er­ship is barely enough to cover op­er­at­ing cost let alone ser­vice the fi­nanc­ing cost to build the in­fra­struc­ture.

The freeze on toll hikes, slightly higher min­i­mum wages by a fur­ther RM50, an in­crease in tax re­liefs for de­posits made in the Na­tional Higher Ed­u­ca­tion Fund Corp ac­count and split in tax re­liefs and a higher thresh­old for Em­ploy­ees Prov­i­dent Fund and life in­sur­ance con­tri­bu­tions are all pos­i­tive for con­sumers in gen­eral and could add to higher dis­posal in­come. A pos­i­tive move for con­sumers from the bud­get.

Bud­get 2019 was less bur­den­some to the peo­ple or cor­po­rates mainly due to the gov­ern­ment’s move to tap into Petro­liam Na­sional Bhd (Petronas) with a one-off spe­cial div­i­dend of RM30­bil to the gov­ern­ment. This is in­deed heart­en­ing to note as Petronas has again come to the res­cue to the gov­ern­ment in time of need.

Af­ter all, Petronas be­longs to all Malaysians and what bet­ter way to help the na­tion than pro­vid­ing the much needed fi­nan­cial sup­port next year, es­pe­cially in the re­pay­ment of Goods and Ser­vices Tax and tax re­funds, which amounts to RM37­bil.

These re­funds will help the econ­omy to reg­is­ter the ex­pected 4.9% GDP growth in 2019 as it is likely that monies dis­trib­uted by the re­fund mech­a­nism will help in driv­ing pri­vate con­sump­tion. An­other pos­i­tive from Bud­get 2019.

An­other in­ter­est­ing rev­e­la­tion is that the gov­ern­ment now recog­nises what is its ac­tual debt and li­a­bil­ity in­stead of lump­ing all of them to­gether as one.

We now see that the ac­tual gov- ern­ment debt is at RM725­bil as at end-June 2018 and it ac­counts for 50.7% of GDP. Govern­ment­guar­an­teed debt now stands at RM258.4bil or about 18.1% of GDP while pub­lic-pri­vate part­ner­ship (PPP)-re­lated li­a­bil­i­ties is now at RM82.3bil or 5.8% of GDP.

Com­bin­ing all, the to­tal debt and li­a­bil­ity is now at RM1,065.9bil, equiv­a­lent to 74.5% of GDP as at end-June 2018.

This is an im­por­tant mea­sure now as credit agen­cies will be watch­ing like hawks for changes in the com­po­nents of debt and li­a­bil­i­ties, which may re­sult in a change in our credit rat­ing.

In­ter­est­ingly, Malaysia is also go­ing to Ja­pan to get as­sis­tance from the Land of the Ris­ing Sun to raise some Samu­rai bonds, which are meant to lower our over­all fund­ing cost.

How­ever, we need to be care­ful as this could also jeop­ar­dise our long-term com­mit­ment due to cur­rency risks.

Lastly, the best part of the bud­get and a sur­prise to many – an amnesty pro­gramme for tax dodgers.

The Spe­cial Vol­un­tary Dis­clo­sure Pro­gramme for tax­pay­ers to de­clare un­re­ported in­come, in­clud­ing those in off­shore ac­counts, is seen as a way to not only gen­er­ate ad­di­tional rev­enue for the gov­ern­ment but to in­crease tax com­pli­ance.

As can be seen, Bud­get 2019 is in­deed a bud­get for all – whether the good, the bad or the ugly – but at the same time, it had been care­fully crafted by the Pakatan Hara­pan gov­ern­ment to give us hope and be­lieve that Malaysia re­mains a land of op­por­tu­nity, of growth and of in­clu­sive­ness, and a na­tion that takes care of its peo­ple.

De­spite the fall in the share prices of Gent­ing, Gent­ing Malaysia and Malaysia Air­ports, the mar­ket can be said to be gen­er­ally re­cep­tive of Bud­get 2019.


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