Monday, October 28, 2013

Budget 2014: Significant for 2015

Malaysia's Budget 2014 announced on Friday 25 October 2013 is significant.

1. The Budget prepares the ground for a major tax reform in 17 months' time when the proposed 6% GST (Goods and Services Tax) will be implemented on 1 April 2015 and presumably the proposed income tax reduction will also be applicable for the assessment year 2015.

For this reason (that it is still in the future) that we cannot get the details for these tax proposals, except for these:

>GST will not be imposed on basic food items such as rice, sugar, salt, flour, cooking oil, lentils, herbs and spices, salted fish, cencalok, budu and belacan; nor piped water supply on the first 200 units of electricity per month for domestic consumers;nor services provided by the Government such as the issuance of passports, licences, health services and school education; nor transportation services such as bus, train, LRT, taxi, ferry, boat, highway toll as well as education and health services; nor sale, purchase and rental of residential properties and selected financial services.

Individual income tax rates will be reduced by 1 to 3 percentage points for all tax payers. Families with monthly income of RM4,000 will no longer have tax liability (from RM3,000). Individual income tax structure will be reviewed to with the chargeable income subject to the maximum rate raised from exceeding RM100,000 to exceeding RM400,000. The current maximum tax rate at 26% will be reduced to 24%, 24.5% and 25%. Corporate income tax rate be reduced by 1 percentage point from 25% to 24%. These measures will be effective from 2015.<

Since these proposals will be implemented in the future, there will be time for things to be adjustment presumably according to the more refined calculations in Budget 2015 in twelve months' time.

Nonetheless, I am happy that there is thought of a significant structural adjustment to the personal income tax structure which I think is long overdue as a result of the persistence of strong inflationary pressures in the economy. I like the shift of the top chargeable income bracket from RM100,000 to RM400,000 which is very much to be applauded.

2. The other significant measure of Budget 2014 is the serious attempt at reining in the escalation of property prices in Malaysia.

> The Real Property Gains Tax (RPGT) will be reviewed. For RPGT is raised to 30% for properties disposed up to three years, 20% up to four years, 15% up to five years and no RPGT after five years for citizens and 5% for companies. For non-citizens, 30% RPGT for properties disposed up to 5 years and 5% in the sixth and subsequent years. The minimum price of property that can be purchased by foreigners is raised from RM500,000 to RM1,000,000.

Developers cannot implement projects with features of Developer Interest Bearing Scheme (DIBS), where developers incorporate interest rates on loans in house prices during the construction period, and financial institutions are prohibited from providing final funding for such projects.<

It is still unclear when this will come into force. But this is significant.

Developers and financial institutions seem to be in cahoot serving their own vested interests at times when the talents of financial institutions should be trained at developing the fundamentals of the economy. I am sure there will be plenty of counter-arguments by these two major types of institutions which so far have been quite happy to be calling all the shots in the economy. I am glad that someone has finally stood up to try to correct the situation. Of course, recent property price increases were due to higher building material costs and greater demand, etc. But there must be some control.

The rest of the Budget, as the man himself said, is a post-election budget which means that as many projects so promised will be mentioned. Including national security, education, etc. There is of course whether the sums allowed are sufficient to do their proper jobs. That may be for future budgets to deal with as typically development projects takes several years to finish. The success of the collection of the GST will determine the degree of completion of those projects and others.The government deficit is likely to be significantly unchanged as of now, with hope that the GST will be the answer to all problems, as the advisers will surely reassure the PM as such.

I don't quite like the racial stuff though.

I think Budget 2014 is a significant budget for 2015.


walla said...

It's a pleasant surprise income tax is reviewed to be reduced. Anything that keeps money away from this politicized present government is a godsend. After all, it has shown itself not only as fiscally imprudent but also racially impudent. No?


One had expected they would have set a revolutionary spark to two industries - agriculture and manufacturing - to show they understand that until we close the gap on real education standards, we are not able to develop services-growing natural resourcefulness that will eclipse our dependence on natural resources so as to wean ourselves away from the resource curse that has blighted federal thinking until today it is all just spin and ponzi with regards national financial management. Yes?


Over-arching everything is the strategic target of poverty abatement. That comes from a two-stage reentry (oops). Foster inter-racial/faith interdependence, then juxtapose personal self-reliance.

This process will bypass all the bad effects of affirmative policies and social dysfunctions. They didn't. So the root of the problems remains. That root rots everything.


The economic torsional forces today are a tug-o-war between two mutually opposing stances: 'so what?' versus 'how long more?' We see the situation climaxing recently in the US. It has also frothed up here. But the difference is the US can self-regenerate. We can't. And that is why this federal budget is a first in being just a byway budget that leads to another to come in which all eggs will be put in just one basket.

Note that by doing so they have shown they are prepared for the dire consequences that will spread out once implemented.

Effects are already apparent. Prices have gone up and the domestic economy is hunkering down to harsher times ahead. Except in some places, the sparks of growth are just not there anymore.


walla said...

In their heads is just cosmopolitanism. That's the only vision of well-heeled planners who have never seen things at the base of the pyramid nor compute into the wee hours an estate payroll to understand the full gravity of the human situation.

This cosmopolitanism is about starbucks and electronics, bookshops and cinemas, glittering showcases and bullet trains, gleaming skyscrapers and easy bucks with one phone call by playing the brokers game of information as value-multiplier. It's also about fine clothes, leather accessories, exotic travels, good food, warm company, and fuss-free financial nest eggs. Set for life was the 'arrived' envisioned. All that came from long stays overseas in the high finance super-efficient cities of the world where starry eyes and simple minds got aff-luenced by what was so different there from here. Sheer mental incontinence.

While it's may not be such a bad vision, the reality here is much otherwise at ground level. And the budget did not articulate a single bridge on how to arrive there from the mud and gravel and grime here. The conspicuous absence of that bridge is telling of the accuracy of this observation.

So if what is missing is reality and if what is only offered is vision, how can 2020 be achieved when the vision is already specky and grey and airy with regards the real situation that is to be changed?

Help reduce all costs and taxes in agriculture and manufacturing. Pare their bureaucracy to bare bones. These two industries affect the lower pyramid segment the most. Doing so will be a better way to help them cushion the effects of GST roll-out.

Meanwhile take the bull by the horns on education. Create the release levers to support all those who can drive forward their innate intelligence in order to drive forward the future economy so that the economic pie can enlarge for all at a faster rate, given the proclivity by some for both procreation and dependency.

Because the financing charges on a ballooning debt will kill every and any effort to discharge it.

walla said...

We have gone past optimized debt ratios and entered the no-mans land of perpetual debt as the drowning yoke on future generations.

We have seen how debts liquefied and securitised have destroyed entire economies at the hands of craven crooks.

We are now playing with a consuming fire only held at bay by myopia and spin.

The sly will slay.

Stupidity and greed killed this country.

And you know it. No?

(no, not you).

walla said...

There may be a saving grace somewhere.

Let's call it the shadow economy.

In the coming months, it will grow and become even more efficient.

Why should earnest honest and hardworking people pay taxes so as to fund the irresponsible and insane lifestyles of morally hypocritical and mentally deficient politicians?

If people get to keep their hard-earned money instead, wouldn't they be the best productive factors in any economy to sustain its growth and invest for better development?

Why should anyone pay taxes so that official residences can run a tab of two million ringgit in electricity bills essentially for a couple, one of whom burns aviation fuel as an escapade hobby while the other engages in multimillion ringgit projects whose KPIs seem to have escaped the attention of a Pemandu mandated exactly to maintain them?

Why should citizens pay taxes so as to receive the ignoble judgements of a judiciary system that is neither just nor a system when it suits itself to be politically convenient to be so?

Why should voters have to listen to the jingoistic crap of racists and zealots hellbent on only dividing communities in order to carve up their own personal domains of power-mongering?

Why should anyone read people who can say they demand to be conservatives because they want to conserve their way of life to be officially preeminent and yet show by their conspicuous lack of scrotal gumption that they can be utterly and irrefutably silent on all the corruption and racism of their lot of ultra-conservative thugs?


-the end-