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Showing posts with label GST. Show all posts
Showing posts with label GST. Show all posts

Saturday, September 1, 2018

SST - for better or worse ?

What is Sales & Service Tax (SST) in Malaysia? - SST Malaysia

Today, the Sales and Service Tax (SST) makes a comeback on our tax radar screen to replace the three years and two months old Goods and Services Tax (GST), which was implemented on April 1, 2015.

The abolition of the GST and replaced with SST is an election promise of the Pakatan Harapan manifesto.

It has been claimed that the GST is a regressive broad-based consumption tax that has burdened the low- and middle-income households amid the rising cost of living. The multi-stage tax levied on supply chains also caused cascading cost and price effects on goods and services. That said, the Finance Minister has acknowledged that the GST is an efficient and transparent tax.

Following the implementation of the SST, the Government will come to terms that the budget spending will have to be rationalised and realigned with the lower revenue collection from the SST to keep the lower budget deficit target on track.

The expected revenue collection from SST is RM21bil compared to an average of RM42.7bil per year in 2016-17 from GST.

During the period 2010-2014, the revenue collection from the SST, averaging RM14.8bil per year (the largest amount collected on record was RM17.2bil in 2014), of which 64% was contributed by the sales tax rate of 10% while the balance 36% from the service tax of 6%.

Faced with the revenue shortfall, the Government expects cost-savings, plugging of leakages, weeding out of corruption as well as the containment of the costs of projects would help to balance the financing gap between revenue and spending.

The sales tax rate (0%, 10% and 5% as well as a specific rate for petroleum) and service tax of 6% is imposed on consumers who use certain prescribed services. The taxable threshold for SST is set at annual revenue of RM500,000, the same threshold as GST, with the exception for eateries and restaurants at RM1.5mil.

As SST is levied only at a single stage of the supply chain, that is at the manufacturers or importers level and NOT at wholesalers, retailers and final consumers, it has cut off the number of registered tax persons and establishments from 476,023 companies under GST as of 15 July to an estimated 100,405 under SST.

The smaller number of registered establishments means no more compliance cost to about 85% of traders.

The distributive traders (wholesalers and retailers) will be hassle-free from cash flow problems, as they are no longer required to submit GST output tax while waiting to claim back the GST input tax. During GST, many traders imputed refunds into their pricing because of the delay in GST refunds. This was partly blamed for the cascading cost pass-through and price increases onto consumers.

For SST, 38% of the goods and services in the Consumer Price Index (CPI) basket are taxable compared to 60% under the GST.

It is estimated that up to RM70bil will be freed up to allow consumers to spend more.

Expanded scope

The proposed service tax regime has a narrower base (43.5% of services is taxable) compared to the GST (64.8% of services is taxable).

Medical insurance for individuals, service charges from hotel, clubs and restaurants as well as household’s electricity usage between 300kWh and 600kWh are not taxable. However, the scope of the new SST has been expanded compared to the previous SST. Among them are gaming, domestic flights (excluding rural air services), IT services, insurance and takaful for individuals, more telecommunication services and preparation of food and beverage services as well as electricity supply (household usage above 600kWh).

For hospitality services, the proposed service tax lowered the registration threshold of general restaurants (not attached with hotel) from an annual revenue of RM3mil under old service tax regime to RM1.5mil, resulting in expanded coverage of more restaurants.

Private hospital services will be excluded under the new SST regime.

How does SST affect consumers?

Technically speaking, the revenue shortfall of RM23bil between SST and GST is a form of “income transfer” from the Government to households and businesses. This is equivalent to tax cuts to support consumer spending.

Will it lead to higher consumer prices?

The contentious issue is will the SST burden households more than that of the GST? It must be noted that the cost of living not only encompasses prices paid for goods and services but also housing, transportation, medical and other living expenses.

The degree of sales tax impact would depend on the cost and margin (mark-up) of businesses along the supply chain before reaching end-consumers.

The coverage and scope of tax imposed also matter.

As the price paid by consumers is embedded in the selling price, this gives rise to psychology effect that sales tax is somewhat better off than GST.

The good news to consumers is that 38% of the goods and services in the Consumer Price Index (CPI) basket are taxable compared to the 60% under the GST.

Technically speaking, monthly headline inflation, as measured by the Consumer Price Index, is likely to show a flat growth or even declines in the months ahead.

It must be noted that consumers should compare prices before GST versus the three-month tax holiday (June-August).

Generally, consumers perceived that prices should either come down or remained unchanged as the sales tax is levied on manufacturers.

On average, some items (electrical appliances and big ticket items such as cars) would be costlier when compared to GST and some may come down (new items exempted from SST).

Nevertheless, we caution that consumers may experience some price increases, as prices generally did not come as much following the removal of GST in June.

There are concerns that prices may still go up in September when the new SST kicks in as irresponsible traders may take advantage to increase prices further.

Household consumption, which got a big boost during the three-month tax holiday in June-August, could see some normalisation in spending.

The smooth implementation of the new SST, accompanied by strict enforcement of price checks and the curbing of profiteering, especially for essentials goods and services consumed by B40 income households, are crucial to keep the level of general prices stable.

Strong consumer activism with the support of The Federation of Malaysian Consumers Association and the Consumers Association Penang as well as the media must work together to help in price surveillance and protect consumers’ interest.

Credit to Lee Heng Guie - comment

Related post:

GST vs SST. Which is better?

 

Sunday, August 12, 2018

GST vs SST. Which is better?


MALAYSIA’s decision to revert to the Sales and Service Tax (SST) from the Goods and Services Tax (GST) will result in a higher disposable income due to relatively lower prices it will incur in most goods and services.

Consumers will have a choice in their consumption – by paying service taxes based on their affordability and ability.

The coverage of GST was comprehensive and it covered too wide a sector. While it was able collect a sustainable sum of RM44bil for the country, it was not people-friendly.

The narrowing scope of the SST will at most, collect approximately RM23bil for the country but it will indeed relieve the people – so SST is needed by the people.

Methodology of SST

The Sales Tax Bill and the Service Tax Bill have just been passed at the Dewan Rakyat and are expected to get approval from the Dewan Negara when it convenes on August 20.

This leaves little room for businesses and entrepreneurs to get ready for the new tax regime in less than a month’s time.

Therefore, it is of utmost importance to understand the concept and mechanism of SST as stated in both the Bills.

SST comprises two legislations. The sales tax is imposed on the manufacturing sector as governed by the Sales Tax Act 2018 while service tax is imposed on selected service sectors, with one of the most notable ones being the food and beverage (F&B) service providers.

The Service Tax Act 2018 would govern the selected service providers and the details would be gazetted in the subsidiary legislation, PU(A) Service Tax Regulations 2018.

Finance Minister Lim Guan Eng has announced that the threshold for F&B providers is set at annual turnover of RM1mil.

This would mean that those who operate with less than RM1mil turnover would not charge service tax at 6%.

This translates into hawker food, cafes, take aways or food trucks being able to provide F&B at lower prices as compared to the GST regime of 6%. Consumers are deemed to be given an option to pay service tax or not, depending on their consumptions at places such as fast food outlets, restaurants or food courts.

Generally, living costs will be relatively lower in the SST era as the B40 group of consumers would certainly be relieved in their daily eating affair.

The existing GST regime sets up the threshold at RM500,000 per year, meaning that almost all restaurants, including simple mixed rice outlets, would have a GST of 6% imposed. The service tax regime would not impose service tax of 6% on service charge rendered in any restaurant or café operator.

Service charge in its true essence, represents tips or gratuity to the waiters working in the restaurant and it is entirely at the discretion of the F&B operators.

These operators may choose to charge from 5% to 15% or even free of charge. In summary, in the event service charge is imposed, it would not be subject to service tax.

SST is people friendly as the daily consumption of food and beverages would be much lower in price as compared to the GST regime. The imposition of service charge is not governed by any law and it is entirely at the discretion of the F&B operators.

In order to avoid disputes, it is advised that notice be placed outside the premises if the F&B operator is imposing a service charge ans the rate determined by them.

SST is one stage

Sales Tax is only imposed one time on the manufacturing company when a sale is made to a trading company. The subsequent sales of the goods by the trading company would have no sales tax imposed.

Business entrepreneurs must be mindful and careful in the cost management as Sales Tax – although imposed at 10% – would eventually result in a much lower pricing of goods as compared to the GST regime.

GST is operating on a value added concept with input tax available as deduction. The supply chain moving from manufacturers to distributors, dealers and to consumers would result in higher pricing as GST is imposed on final stage, comprising of value add and profit margin.

SST is a business cost

Under the GST regime, input tax is available as a credit or deduction against output tax based on tax invoice received from GST registrant suppliers.

This would mean that GST is never a business cost as deduction is available against output tax even though there is no sales generated. Sales Tax on the other hand, would be paid by the trading company purchasing goods from the manufacturing company.

It is a business cost and deduction is only available when there is a sale. This would mean that business cost would be higher as Sales Tax is part of the inventory cost and to be deducted as cost of sales when goods are sold or exported. In simple terms, no sales, no deductions.

Businessmen are urged to carefully analyse the cost and not overprice the goods for the benefits of the people and the sustainability of their businesses. The reduction of GST from 6% to nil would immediately translate a price reduction of 6%, which is a must for a businesses to adhere to.

Failure to adhere to the pricing would expose the operators to the fines and penalties on anti-profiteering governed by Price Control and Anti-Profiteering Act 2011.

As the breakdown shows, SST is well suited in the Malaysian environment, to both the business communities and the people.

Source: Dr Choong Kwai FattDubbed the Malaysian tax guru, Dr Choong Kwai Fatt is a tax specialist and advocate.

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    Implications of the 'RM19bil GST collected, RM18bil taken’ and RM19.4bil shortfall !

    https://youtu.be/Ew5Fk-ml6Mo  The immediate concern is the budget deficit for 2018 spiking to 4% if the GST refunds are made this ye..  

  • Jobs ahead for Pakatan's first 100 days fiscal reform

    Saturday, August 11, 2018

    Implications of the 'RM19bil GST collected, RM18bil taken’ and RM19.4bil shortfall !

    https://youtu.be/Ew5Fk-ml6Mo 

    The immediate concern is the budget deficit for 2018 spiking to 4% if the GST refunds are made this year


    ON May 31, when Finance Minister Lim Guan Eng announced that the new government would be able to meet the budget deficit of 2.8% for this year, the sum of RM19.4bil that is to be refunded to companies since the goods and services tax (GST) was discontinued, never came into the equation.

    Now, since that money is not in a trust account that was specifically set up to meet the refund obligations, does the government need to borrow more to ensure it meets the refunds? In doing so, would it incur a bigger budget deficit than had been envisaged?

    There are wider implications on the shortfall of the RM19.4bil, assuming the refunds are to be done this year.

    The biggest challenge for Lim is to cover the shortfall to maintain the budget deficit for 2018 at 2.8%.

    The hallmark of the Pakatan Harapan government’s first 100 days of rule is to bring down the cost of living and cost of doing business. Towards this end, it has subsidised the price of petrol and diesel and removed the GST.

    The cost of keeping up with the Bantuan Sara Hidup and subsidy for petrol and diesel is estimated to be about RM6.2bil between June and December.

    Revenue loss due to discontinuing the GST from June 1 onwards is estimated at RM21bil.

    The shortfall is made up of cutting down government expenditure by RM10bil, increasing dividends from government agencies such as Khazanah Nasional Bhd and Petroliam Nasional Bhd, a higher petroleum income tax of RM5.4bil and proceeds from the implementation of the sales and service tax from September onwards.

    Nowhere was the RM19.4bil figure that is to be paid back to companies under the GST that was discontinued mentioned.

    Lim has said that the money was supposed to be in the trust account, but is not there and has gone “missing”.

    Former Finance Ministry secretary-general Tan Sri Mohd Irwan Siregar Abdullah has said that all proceeds from the GST went into the consolidated fund of the federal government. The amount to be refunded is allocated to the trust account monthly based on the requirements of the Customs Department and the financial position of the government.

    Customs director-general Datuk Seri Subromaniam Tholasy has revealed that since the GST was implemented on April 1, 2015, the total refunds amounted to RM82.9bil and the amount allocated to the trust account from the federal government consolidated fund was only RM63.5bil – representing a shortfall of RM19.4bil.

    Generally, refunds for the GST are to be done within 14 days. But the amount allocated is less because not all refunds are paid within the two-week period.

    At times, refunds are held back up to one year, pending investigations. Hence, the cash allocated to the trust account maintained by the Customs and the Inland Revenue Board (IRB) is less than the total amount due for refunds.

    For instance, in 2017, the amount allocated to the IRB trust account for refunds was RM7bil when the total amount to be refunded was more than that.

    In the case of the Customs, the outstanding refunds for 2017 was RM15bil, but the amount allocated was less.

    Under the previous government, the GST provided a steady flow of cash every month. The thinking was that the money for refunds should be allocated when it comes due to best manage the cash-flow position of the government.

    However, the view of Lim is that money meant for refunds should have been put into the trust account, irrespective of whether there is a need to pay immediately or otherwise.

    Hence, the issue is not really the question of the RM19.4bil meant for refunds going “missing”.

    It is whether the money is still in the consolidated accounts or whether it has been utilised. If it was utilised, did the government have the right to use it for other purposes in the name of cash-flow management?

    The bigger implication for the Pakatan government is how it is going to cover this RM19.4bil shortfall.

    One of the ways the government can cover the RM19.4bil hole without increasing the deficit is to cut more of the excesses.

    On this score, the Pakatan government has so far handled public funds in a more judicious manner compared to the previous government. It has cut down the budget for inflated infrastructure projects and stopped unnecessary spending.

    The light rail transit 3 and East Coast Rail Link projects are only some examples. It has stopped prestigious projects such as the KL-Singapore high-speed rail and the less glamorous mass rapid transit line 3 project. The government of today has earned full marks for being transparent and diligent in handling public finances.

    Despite declaring that the federal government debt is at RM1.07 trillion, business sentiment is at a seven-year high, while consumer sentiment is at a 21-year high.

    The stock market is looking good so far, much better than the likes of China and Hong Kong, although the improved sentiments are likely to be temporary.

    As for the ringgit against the US dollar, its performance is better against many of the Asian and emerging-market currencies. The tumbling of the Turksih lira and Russian rouble is testimony that the ringgit is not that bad after all.

    The government can probe, produce a White Paper or do anything else to look into the RM19.4bil shortfall, but the bottom line is that Lim and Prime Minister Tun Dr Mahathir Mohamad will have to face the reality of making up for a RM19.4bil shortfall in government finances for this year.

    Economists are predicting that the federal government budget deficit would be higher than the 2.8% estimated on May 31 this year on the assumptions are made this year. Some are looking at the budget deficit to be as high as 4%

    Would there be an impact on Malaysia’s credit rating and the ringgit?

    Yes, a spike in the budget deficit would have an impact for the short term.

    However, the government of the day will score brownie points in its drive to bring about reforms and governance in the management of public funds. Rating agencies would appreciate any government that promotes transparency and improves on its finances purely by spending within its means.

    So far, the government has done away with the GST and taken measures to put more cash into the hands of the people and business to improve domestic spending. The stabilisation of petrol prices and threemonth (June to September) tax-free period between the implementation of the GST and SST has put RM20bil into the hands of the people and businesses. This should help improve the domestic economy for a few months.

    However, for the longer term, investors and rating agencies will be looking at how the RM19.4bil hole in the federal government finances will be covered. What are the government assets that will be sold?

    Certainly, we are not looking at an expansionary budget come November this year.

    Source:  The Alternative view by M.Sshanmugam The Star

    RM19bil GST collected, RM18bil taken’




    KUALA LUMPUR: The previous government has not been able to refund companies their tax credit that came about following the implementation of the Goods and Services Tax (GST) because 93% of the money was not placed in the correct account, Finance Minister Lim Guan Eng revealed.

    He said some RM18bil of the RM19.4bil input tax credit under the GST system since 2015 was “robbed” by the previous administration.

    “I was very shocked when informed that this happened because the previous government had failed to enter the GST collection in the trust account specifically meant for the repaying of GST claims.

    “Instead, the Barisan Nasional government pilfered the trust account and entered cash GST collection directly into the consolidated fund as revenue to be spent freely,” he said when tabling the GST (Repeal) Bill 2018 during its second reading in Parliament yesterday.

    He said that as of May 31, the outstanding GST refund stood at RM19.397bil whereas there was only a balance of RM1.486bil in the repayment fund.

    Lim said from the total input tax credit, RM9.2bil or 47% was recorded between Jan 1 and May 31 this year, RM6.8bil or 35% in 2017, RM2.8bil (15%) in 2016, and RM600mil (3%) in 2015 (from April 1 to Dec 31, 2015).

    Under GST, the input tax credit allowed businesses to reclaim credit for taxes paid on purchases, subject to filing of input tax documents.

    In his winding-up reply, Lim said a comprehensive investigation would be carried out to determine the cause of the missing funds.

    When debating the Bill, Lim also said he had asked for documents to show how the input tax had ended up in the consolidated fund.

    “I asked the Chief Secretary to the Government for the Cabinet papers on the matter.

    “However, he told me he could not remember anything of such,” he added.

    Lim said former Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz, when told of the missing funds, said it was imperative that the money was returned to the claimants as it was fiscally moral to do so.

    Later, at the Parliament lobby, Lim said a former Treasury secretary-general may have been aware of the missing RM18bil.

    The previous government, he said, had committed wrongdoing over the missing funds.

    “I would assume the previous KSP (ketua setiausaha perbendaharaan/Treasury secretary-general) would have known about this.

    “We want something definite because we want to look at the circle of decision-makers,” he said.

    By martin carvalho, hemananthani sivanandam, rahimy rahim, and loshana k shagar The Star

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    Tuesday, February 20, 2018

    Singapore budget 2018: hiking its sales tax, but not until 2021 or later

    https://youtu.be/QbytAqqXiCk

    http://www.singaporebudget.gov.sg/budget_2018/
    https://twitter.com/MOFsg



    Higher GST: A file picture showing people walking along busy Orchard Road in Singapore. The country says its sales tax will rise to 9% but the change will come sometimes between 2021 and 2025

     

     Singapore is hiking its sales tax, but not until 2021 or later

     

     SINGAPORE (Reuters) - Singapore said its sales tax will rise to 9 percent from 7 percent, but the change will only come “sometime” between 2021 and 2025, making it likely that the increase would kick in after the city-state’s next general election.

    Instead of getting a GST hike soon, Singaporeans aged 21 and above will get a “hong bao”, or Lunar New Year red packet, as Finance Minister Heng Swee Keat announced a “one-off” bonus in 2018 of up to S$300 ($228.50), depending on their income.

    The bonus comes after Singapore’s trade-reliant economy grew 3.6 percent in 2017, its best pace in three years. 

    Global economic growth, plus comments by policymakers on the importance of raising revenue to meet future spending needs for Singapore’s ageing population, led many analysts to expect that the Goods and Services Tax, kept at 7 percent since 2007, would increase as early as the coming fiscal year. 

    “The surprise for us was that the planned increase was for a much later period,” said Jeff Ng, chief economist Asia for Continuum Economics. 

    “This eases the need for a future government or administration to announce the GST,” Ng said. 

    Singapore’s next general election is due to be held by January 2021. In the last one in 2015, the ruling People’s Action Party won 70 percent of the vote, a strong improvement from the 60 percent garnered in 2011. 

    After announcing the planned GST hike, the finance minister said “the exact timing will depend on the state of the economy, how much our expenditures grow, and how buoyant our existing taxes are. But I expect that we will need to do so earlier rather than later in the period.” 

    Singapore introduced a GST in 1994, with a 3 percent rate. This was raised to 4 percent in 2003 and 5 percent in 2004, then to 7 percent in 2007. The current rate is among the world’s lowest for a consumption tax.

    CARBON TAX COMING 

     

    Besides the plan for raising GST, Heng unveiled other tax measures. 

    These include increasing the top marginal buyer’s stamp duty on residential property worth more than S$1 million effective from Tuesday, raising the excise duty on tobacco products and introducing GST on imported services from 2020. 

    Coming in 2019 is a carbon tax, which will be S$5 per tonne of greenhouse gas emissions until 2023. The plan is to increase it to between S$10-S$15 per tonne by 2030. 

    Heng said spending needs will rise across various sectors in coming years, including in healthcare, infrastructure and security. 

    The government expects average annual healthcare spending to rise from 2.2 percent of GDP currently, to almost 3 percent of GDP over the next decade, he added. 

    “With an ageing population and an increasing chronic disease burden, the demands on families and Government will rise,” the finance minister said. “We will need to spend even more on healthcare.”
    Heng, one of several cabinet ministers considered a possible successor to Prime Minister Lee Hsien Loong, said in the speech “We must anchor Singapore as a Global-Asia node of technology, innovation and enterprise.” 

    Song Seng Wun, an economist for CIMB private banking, said the one-off “hong bao” bonus was a product of Singapore’s economy having a “better than expected outcome” in the last year.

    (For a graphic on Singapore's ageing demographics click reut.rs/2BzapNH

    Reuters Graphic

    ($1 = 1.3125 Singapore dollars) 

    Additional reporting by Aradhana Aravindan and Fathin Ungku; Editing by Richard Borsuk

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     Singapore announces one-time bonus of S$100-S$300 for adult Singaporeans - ASEAN/East Asia



    The Straits Times

    Tuesday, January 20, 2015

    Malaysia revised budget 2015: cuts RM5.5 bil, deficit target 3.2%, focus on manufactured goods

    Prime Minister Datuk Seri Najib Razak delivers his speech on the revision of the Budget 2015 at the Putrajaya International Convention Centre today. He said a slew of cuts amounting to RM5.5 billion will take place as part of Putrajaya’s proactive measures. – The Malaysian Insider pic by Nazir Sufari, January 20, 2015.



    Prime Minister Datuk Seri Najib Razak today announced a slew of budget cuts amounting to RM5.5 billion as part of Putrajaya’s “proactive measures” to align itself with plunging global oil prices and revised world economic growth projections.

    The cuts would come from the Budget 2015’s operational expenditures that were initially set at RM223.4 billion, while the RM48.5 billion for development would remain untouched, Najib said in his speech today at the Putrajaya International Convention Centre.

    Also, the fiscal deficit target of 3% of the Gross Domestic Product (GDP) for the year has been revised to 3.2%.

    Najib said this was still lower than 2014’s fiscal deficit of 3.5%. The "proactive measures" to achieve the RM5.5 billion savings are:

    “(The government will) optimise outlays on supplies and services, especially overseas travel, events and functions and use of professional services. This will result in savings of RM1.6 billion.

    “Second, defer the 2015 Program Latihan Khidmat Negara (National Service) to enable the programme to be reviewed and enhanced, with savings expected at RM400 million.

    “Third, review transfers and grants to statutory bodies, GLCs, Government Trust Funds, particularly those with a steady revenue stream and high reserves. This measure will result in savings of RM3.2 billion.

    “Fourth, reschedule the purchase of non-critical assets, especially office equipment, software and vehicles, with an expected savings of RM300 million.”

    Najib said Putrajaya’s revenue would be enhanced by encouraging companies to register with the Royal Malaysian Customs to enable them to charge and collect the goods and services tax (GST).

    He estimated that broadening the tax base would contribute an additional RM1 billion.

    Putrajaya would also realise additional dividends from GLCs and GLICs as well as other government entities amounting to RM400 million, said Najib.

    He added that the revisions to the budget were necessary as Putrajaya would otherwise face a revenue shortfall of RM8.3 billion due to falling crude oil prices, despite savings of RM10.7 billion after doing away with fuel subsidies.

    “Without any fiscal measures, the deficit will increase to 3.9% of GDP against the target of 4% for 2015.

    “This requires the government to take measures to reduce the deficit, in line with the government’s commitment towards fiscal consolidation.”

    Najib said the GDP growth target between 5% and 6% had been revised to between 4.5% to 5.5%.

    To ensure economic growth remained strong, he said Putrajaya would boost exports of goods and services, enhance private consumption, and accelerate private investment.

    Among its strategies are postponing the scheduled electricity tariff and gas price hike, and increasing nationwide mega sales.

    Meanwhile, Najib announced an initial allocation of RM800 million for the repair and construction of basic infrastructures affected by the recent floods, and another RM893 million for flood mitigation projects.

    These included building eight-foot high stilt houses for those who have land and whose homes were damaged by the floods, and handing over 1,000 units of low-cost homes in Gua Musang, Kelantan.

    As he concluded his speech, he told Malaysians the country was not in a financial crisis or recession, but simply taking pre-emptive measures.

    “We are neither in recession nor a crisis as experienced in 1997, 1998 and 2009, which warranted stimulus packages.

    “The strategies announced by the government are proactive initiatives to make the necessary adjustments following the challenging external developments which are beyond our control.

    “This is a reality check following, among others, declining global crude oil prices,” he added. – January 20, 2015.

    By ANISAH SHUKRY The Malaysian Insider

    Focus on Malaysian-manufactured goods




    PETALING JAYA: The impact of the reduction in global oil prices from US$100 to US$40 per barrel can be offset by a rise in demand for Malaysian-manufactured goods, said Prime Minister Datuk Seri Najib Tun Razak (pic) on Tuesday.

    Najib, who announced revisions to the 2015 Budget which was tabled in October 2014, said that this could be done as crude oil only makes up 4.5% of the nation's total exports.

    "The reduction in the price of crude oil will indirectly increase demand in Malaysia-made products. We will actively promote 'import-substitution' to reduce our dependency on external sources to obtain goods and services," said Najib.

    He added that the Government initiatives would be created to increase the use of the private sector.

    "We will give priority to local Class G1 (Class F), G2 (Class E) and G3 (Class D) contractors registered with the Construction Industry Development Board to carry out recovery works in their local areas affected by the east coast flood," said Najib.

    He added that the Government would intensify promotions encouraging the public to buy made-in-Malaysia products.

    "We will increase the frequency and duration of mega sales throughout the nation, and intensify domestic tourism promotions by offering competitive airfares," said Najib.

    He also said that the Government would encourage the private sector to reap opportunities created by the Asean Economic Community.

    "We will also intensify programmes to boost exports of Malaysian goods in 46 nations across Asia, Europe, the Middle East and America," said Najib.

    In his speech, Najib said the adjustment to the 2015 Budget was necessary to "ensure our economy continues to attain respectable and reasonable growth, and development for the nation and rakyat continues" as the 2015 Budget was based on the price of crude oil remaining at US$100 per barrel.

    "Based on a crude oil price of US$100 per barrel and taking government saving measures and retail price controls into account, the Government was expected to have a fiscal profit of RM3.7bil. However, with the current price of oil at US$55 a barrel, the government will lose RM13.8bil in income," said Najib.

    By Tan Ti Liang The Star/Asia News Network

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    Saturday, January 3, 2015

    Malaysian property market likely to regain momentum post GST

    Based on the experience of several countries that implemented GST, Wong, research head of CIMB says there has been a pick-up in retail sales ahead of the value-added tax, particularly three to six months before the implementation. Retail sales then eased (in those countries) in the six months after GST before rebounding in the nine to 12-month period after (see chart).

    ALTHOUGH the goods and services tax (GST) has caused uncertainties among the people, the real estate market is expected to even out after the initial rush to close sales, property agents say.

    Developers are also taking advantage of public expectations that they would have to pay more for property after the GST becomes effective, real estate consultants say.

    The implementation of the GST is expected to increase house prices by between 3% and 5%. It would likely further exacerbate the market sentiments. “So (until April 1), some buyers are likely to adopt a ‘wait and see’ approach due to the uncertainties on the impact of the GST,” says C H Williams Talhar & Wong Sdn Bhd managing director Foo Gee Jen.

    The overall price increase will be less in the residential sub-segment, but more in the commercial sub-segment, PA International Property Consultants head of agency Wendy Tong says.

    Although residential properties are zero-rated for GST, materials and services supplied in the development process will be subject to GST and these costs are likely to be passed on to home buyers.

    “Pricing is determined by demand and we expect the market to be impacted for at least the first two quarters when the GST becomes effective,” Tong says.

    After April, the market will find its own level and even out a little, says Malaysian Institute of Estate Agents president Siva Shankar. As transactions in the first half of 2014 were lower compared with first half of 2013 after the property boom in 2011 and 2012, Shankar expects property transactions in 2015 to move slowly.

    “This year, a small growth of between 2% and 5% can be expected as the market braces itself,” he says.

    In terms of affordability, however, the general understanding is that the GST will inevitably add cost to houses in the primary market, as a result of developers incurring input costs but unable to charge those costs as output costs for claim.

    “Generally, when demand is good, developers can pass the cost down to buyers. It looks like demand would be low because the market is not fully undestanding the situation due to some confusion (on the GST),” says Khong & Jaafar group of companies managing director Elvin Fernandez.

    “Those costs will slowly seep into the system in the second or third quarter of 2015,” Fernandez says.

    CIMB Research head of research Terence Wong said in a report that this would be a “tricky” year given the pick up in sales momentum in 2014 on expectation of property prices rising post GST. He points out developers have faced a slow first half of last year due to Budget 2014 measures to curb speculation, however, property sales has picked up in the second half on renewed confidence and expectations that property prices would rise.

    “The net effect is that 2015 could end up being a similar year to 2014 in terms of property transactions, which we could categorise as a lacklustre year,” Wong said.

    In spite of the tough measures, CIMB Research is keeping its “overweight” recommendation on the property sector in its review and outlook sector as valuations of property stocks are attractive and many developers are on track to report record sales and record profits.

    “Many developers had also shrugged off the (anti-speculative) measures and continued to target record sales for 2014. But the first half of 2014 has turned out to be a lot tougher than expected and developers, including UEM Sunrise, have slashed their sales target from RM3.2bil to RM2bil mid-way through the year while others struggled to even match the record sales achieved in 2013,” Wong said.

    Based on the experience of several countries that implemented GST, Wong says there has been a pick-up in retail sales ahead of the value-added tax, particularly three to six months before the implementation. Retail sales then eased (in those countries) in the six months after GST before rebounding in the nine to 12-month period after (see chart).

    “If Malaysia goes through the same pattern and property sales also mimic retail sales, the second half of 2015 will be a trying period for developers,” Wong says.

    Several developers have lined up aggressive launches to take advantage of pre-GST buying to lock in as much sales as possible before potential post-GST blues set in.

    CIMB Research downgraded the property sector from “overweight” to “neutral” in light of tougher property market conditions after the implementation of the GST.

    “Savvier and stronger developers such as Mah Sing and Eco World should be able to weather any turbulence better than the rest and therefore we keep them as our only ‘buy’ calls. UEM Sunrise has been downgraded from ‘add’ to ‘hold’ while SP Setia has been downgraded from ‘hold’ to ‘reduce’ after widening their discount to RNAV further.

    Year of consolidation 

    With lower oil prices, economists are not anticipating rate hikes in the near-term

    Buyers will likely adopt a wait and see attitude for six to nine months after the implementation of the GST.

    THE property sector is expected to slow down further this year following cooling measures and tougher lending conditions implemented in 2014.

    However, the rate of the slowdown may be cushioned with the continuous fall in the price of oil.

    One of the biggest concerns this year is the possibility of the United States raising interest rates, causing more outflow of funds from emerging markets into that country.

    However, the falling oil prices are seen as a boon for the property sector. This is because the deflationary effect it is already having on economies.

    The changing dynamics of lower oil prices on the economy are still unravelling. But economists are not looking at any rate hikes for Malaysia in the near term, unless there are changes in the external sector, and this is something which will work well for the property sector.

    While oil price is a factor, CIMB said the goods and services tax (GST) is another. In a report entitled “Property Development and Investment: Post GST Blues?”, CIMB Research head Terence Wong foresees a pick-up in buying momentum in the first half of 2015.

    According to Wong, there was renewed interest in property transactions in the second half of 2014.

    “Buyers will likely adopt a wait and see attitude for six to nine months after that (post GST implementation), which will be in line with the typical consumer behaviour experienced in most countries that implemented GST. The net effect is that 2015 could end up being a similar year to 2014 in terms of property transactions, which we would categorise as a lacklustre year.... 2015 will be tricky,” he says in his report.

    According to statistics from the National Property Information Centre (Napic), although the country’s overall residential property transactions showed an increase in the first half-year of 2014, this was due mainly to the primary market transitions in Johor, where people buy directly from developers. In the Klang Valley, purchases from developers dropped in the first half of 2014 and increased marginally in Penang.

    In the second half of 2014, the Johor market reversed, according to developers and real estate personnel there.

    Although it has often been said that the Johor market is different from the rest of the country, due to the economic growth area of Iskandar Malaysia and the leverage provided by its proximity to Singapore, the feel-good factor which spurred sales and interest there has shifted.

    Johor-based developer Welton Development Sdn Bhd CEO Thomas C.Y. Ling says the first half of 2014 went on well – good sales figures, great confidence in that market and swarms of investors from around the world.

    However, things started to change in the second half when negative news begun to filter through. This included the increased toll rates at the Singapore and Malaysia checkpoints, concerns about the possible rise in interest rates, the imposition of cooling measures and tighter lending rules.

    Ling says “well known” developers begun lowering prices in the middle of last year. He says this, as well as the weakening ringgit, had brought about concerns to foreign investors.

    Another sign of the times is that buyers are moving away from high-rise projects as prices increase and instead, are investing in landed properties. A Johor-based agent reckons that condominiums priced at RM600,000 and above are seeing this shift towards landed units.

    Sunway Iskandar launched its first phase of mixed development in Iskandar Johor – Citrine, the Lakeview precinct – and successfully sold out its office suites in the middle of last year.

    “Sunway’s pricing came with some discounts. So it did well,” the Johor-based source said.

    The Petaling Jaya-based developer, known also as a theme park developer, is expected to launch landed property this year at fairly “competitive” prices in Sunway Iskandar.

    “Competition is going to be keen as developers are expected to price launches at lower prices. This is expected to be the trend in 2015 and we have already begun to see that during the second half of 2014,” the source says.

    “Developers are re-focussing,” she says. China developer Country Garden is launching studio units and units with sea views. Another China developer R&F has “quietened” down, the source says.

    Developers in Iskandar are holding back or postponing launches and delaying construction. This has resulted in a downward spiral in the Johor property market with most over supply cases in Johor Baru, Danga Bay, and Nusajaya.

    KGV International Property Consultant executive director Samuel Tan agrees that Johor has “several concerns”.

    “The first is the over supply of high-rise units and the critical measure would be curbs on lending. The second is the high number of people who were lured into the market by developers interest bearing schemes, without which, they would not have the capital to do so,” he says.

    Other concerns include the GST and its effect on all sub-segments and the economy.

    “This year will be a consolidating year for all types of properties,” he says.

    Landserve (Johor) Sdn Bhd executive director Wee Soon Chit says he is “still optimistic” about the industrial sector and shop office sector in Iskandar Malaysia.

    The right location, pricing and reputable developer will still work although the general sentiment has been rather weak lately.

    Those who can afford will start hunting for bargained properties (across the board), Wee says. It will take a little longer for the seller to start dropping prices. There will be more clarity towards the second half of 2015, he says.

    Spillover effects in Klang Valley

    The situation in the Klang Valley is expected to be similar, says Klang Valley-based real estate professionals.

    City Valuers and Consultants Sdn Bhd managing director PB Nehru says high value properties – unless they are sold at a perceived bargain – will less likely be transacted.

    New properties located near the light rail transit and mass rapid transit stations or near the purchasers’ centre of gravity will still be transacted.

    “Properties that are surplus to immediate needs will not be a priority; the decision to purchase will be postponed,” says Nehru.

    Having said that, however, he says the Klang Valley has a “large reservoir” of double income middle class households aged below 40 who do not own a “home” of their choice for their own occupation.

    “They have access to down payments, from parents and savings. They will still buy as the perception in the Klang Valley is that, prices here will always go up as this is where all the productive people live and work,” says Nehru.

    An issue befuddling the market is the sheer number of launches in 2011 and 2012 (see table). Transactions doubled between 2010 and 2011 from about 30,000 to 56,000 respectively. In 2012, the number of transactions increased to over 60,000 and dropped by a third in 2013.

    Johor continued to do well in the first half of 2014 while transactions in the Klang Valley dropped.

    Launches sold in 2012 are expected to enter the market this year, says PA International Property Consultants (KL) Sdn Bhd head of agency Wendy Tong.

    Many of these buyers are expected to sell their units if they are unable to get the rent that will cover their mortgage payments, she says.

    Tong’s advice is to “buy based on rental returns.”

    “Buyers should not simply buy just to invest, or for the sake of buying. This was the situation the last couple of years. People were buying for the sake of owning a unit here, or a unit there,” says Tong.

    She says for as long as she can remember, capital appreciation was the main driver in property investments. With slow, little capital appreciation and low yield, there may be little incentive now, she says.

    Although Napic figures showed that primary residential transactions picked up in the first half of 2014 compared with the same period a year ago, both are a far cry from the first half of 2012. Penang primary transactions were the highest in 2011, increasing more than 440% over 2010 before falling by half in 2012. Penang has continued to slow since. Raine & Horne senior partner Michael Geh says Penang’s secondary market remains fairly active, particularly with landed housing.

    “There is a correction in certain locations and segments of the high-end condominium market. The often-speculated upon luxury condo market priced RM700,000 and above (or RM800 and above per sq ft) is a bit soft while there is strong demand for units RM400,000 and below. Landed units remain popular; no correction there. “You got to segmentise the market. Penang is very price sensitive,” he says.

    Office and retail market

    In the overall retail market, there is expected to be less spending at retail malls. Weak sentiment may prevail, reducing retailers’ ability to pay high rents or even current rents due to less turnovers. Rents will directly affect prices. Thus, there will be limited growth in the capital values of retail properties, Nehru says.

    As for the office market, supply exceeds demand and this is expected to continue into 2015, Nehru says.

    The new office space can only be filled by multi-national companies (MNCs), government-linked corporations and public listed companies.

    “They will insist on Grade A dual compliant office buildings for prestige purposes. But MNCs and foreign direct investments will only come if the country’s perceived narrow politics, security, graduate education system and standard of English improves from what they are now,” says Nehru.

    If occupancies, rent and total net rental income cannot increase, prices are unlikely to increase. Older buildings will also continually lose tenants to the newer buildings and are likely to be converted to other uses such as hotels, hostels or be demolished for redevelopment.

    At press time, crude oil is touching US$53 per barrel. The sliding oil price will impact the office market, especially in the Kuala Lumpur city centre, the base for many oil majors.

    A deferment of any interest rate hike will be a major boost to sentiment for the property sector.

    By Thean Lee Cheng and Cheryl Poo The Star/Asia News Network

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