Acting head of the School of Economics, Dr. Wing Leong TEO has recently given commentary to the Oriental Daily News and The Star on Malaysia's new budget which was announced on Friday 25 October.
Most of the commentary has been in Chinese, but here is a summary of what Dr. Teo had to say:
Business is not ready yet – The government introduced 6% of consumption tax, which above market expectations of 4%. He commented the government hopes to achieve a balance of payments and even help reducing the country’s future economic deficit through the tax. In the reduction of income tax, there doesn't seem to be too big surprise, but to implement the new consumption tax in 18 months’ time will cause certain difficulty, despite having a positive effect on national income.
The impact on Small and Medium Enterprises (SMEs) – Corporate income tax rate and income tax rate for SMEs will be reduced by one per cent. He believes this will help increase personal income and enhance the competitiveness of enterprises. Even so, SMEs still suffer the most from this year’s budget. He pointed out that the change in consumption tax and abolish the sugar subsidy may be a big issue for some enterprises, but this would benefit the country’s overall economy.
Fiscal deficit – He stressed that Malaysia’s current fiscal deficit situation is reasonable when compared to other countries with deficit more than 5 – 6 per cent. However, the government must ensure that the deficit will not increase and the implementation of consumption tax is a pro-active action to deal with the debt.
Increase in Real Property Gains Tax (RPGT) to improve the housing price problem - For gains on properties disposed within the holding period of up to 3 years, RPGT rate is increased to 30 per cent. He believes that the government implementing this measure allows the general public to feel that they are putting effort into suppressing the high housing prices and improving the life of the nationals.
Results to be seen - Raise the minimum price of property that can be purchased by foreigners to 1 million ringgit from 500,000 ringgit. He pointed out that Singapore and Hong Kong and other regions have also tried to increase the tax when foreigners make purchase of local property, but this has never been effectively disrupting foreigners in buying local houses and lands.
No surprises from the budget – He concluded that even though there is no surprise from the budget and will be a big impact on SMEs, implementation of consumption tax is expected to reduce the future’s fiscal deficit. "It will be able to attract more investment into the country when the deficit is reduced, the move will effectively promote the country’s future economic development. The situation will be improved once the transition period has passed.” There will be a short-term impact, however, it might be a good change in the longer term.
Posted on 29th October 2013