Thursday, February 25, 2010

PM: Economy poised to experience strong growth

PUTRAJAYA: The worst is over for the Malaysian economy and it is poised to experience strong growth this year, Datuk Seri Najib Tun Razak said.

The Prime Minister, who announced that the gross domestic product (GDP) for the fourth quarter of last year grew by 4.5%, said the country had recovered from the economic crisis.

He said 2010 would be a year to be bullish about as the GDP growth was an indication of better times.

“Barring unforeseen circumstances, we can safely say we have recovered from the crisis and should look forward to strong growth for 2010,” he added.

Good news: Najib getting ready to speak to reporters after announcing the country’s economic performance in Putrajaya Wednesday.

Asked whether the worst was over, Najib replied: “Yes.”

Najib, who is also Finance Minister, was speaking to reporters after announcing Malaysia’s economic performance in the last quarter of last year.

The growth was attributed to the strengthening domestic and external demand.

For the whole of last year, however, the economy contracted by 1.7%, but this was lower than the projected 3% contraction.

The first three quarters of last year saw the economy contracting by 6.2% in the first quarter, 3.9% in second quarter and 1.2% in third quarter.

Najib expressed confidence that this year’s GDP could reach 5%, higher than the 4% projected.

“We will work towards generating confidence, speedy implementation of projects and encouraging the private sector to invest.

“This and with higher consumer confidence, we should make this a good year in terms of our economic performance,” he said.

He pointed out that one of the main reasons why the Govern­ment was able to spend RM1bil a month on projects last year was because of a special monitoring unit that made sure all programmes planned under the two stimulus packages were implemented speedily.

“This is one of the reasons why we managed to achieve more than expected in terms of our economic recovery,” he added.

To date, over 113,000 projects under the two stimulus packages have been or are being implemented, involving a total value of RM17bil. Of that, the Govern­ment has made payments totalling RM13.9bil.

Source: TheStar

Getting to grips with GST – what you should know


THE introduction of the goods and services tax (GST) due mid-2011 will represent a profound change in our tax system in recent decades.

While GST, also known as value-added tax, is as a whole relatively simple compared with the income and corporate tax, some of its features and rules are anything but simple.

This poses a challenge to officials who are charged with bringing on the tax – to get businesses and consumers (i.e. the public) to get to grips with or at least have a broad understanding of how the tax works.

That there are clear misconceptions amongst many can be discerned from the various letters written to the press expressing negative sentiments.

The answers to the following broad questions will assist in the basic understanding of the GST.

What is GST?

It is a tax on consumption, an indirect tax charged on imports and on the value added to goods and services sold by one business to another, or to the end consumer.

It is the buyer who pays the tax, not the seller. GST replaces the current sales and service tax but not the income tax or customs import duty or excise tax. It will be broad-based, covering a comprehensive range of business transactions.

What is value added?

It is basically the mark-up in arriving at the selling price of a product/service. The selling price is made up of the cost of materials and purchases plus profit charged to customers.

How will the tax be charged?

GST will be charged at 4% of the value added to goods/services at each stage of production/ distribution. This rate, indicated by the Finance Minister, is known as the standard rate.

How does GST differ from the sales tax which it will replace?

Sales tax is a single stage tax whereas GST is multi-stage (i.e. the latter is levied at every value added stage in the distribution chain). Unlike the sales tax, GST has no cascading effect and does not lead to price distortion.

What are the benefits from changing to the GST system?

It is widely considered as a more efficient system. More tax can be collected with a lower rate because it is broad based. The system of issuing invoice for input tax credit operates as an auto control which could reduce tax evasion and thus increase income tax collection.

Who can charge GST?

A business with sales in one year amounting to RM500,000, as indicated by the Finance Minister, must register to charge GST. A business with sales amounting to less than this threshold may volunteer to register to charge GST and claim input tax credit (see paragraph below).

GST on imports

Businesses which import goods and services will have to pay GST at the time of importation.

GST on domestic products

Businesses supplying goods and services will pay GST within one month following the end of the taxable period. This taxable period can be one, three or six months depending on how the business is “classified” by the GST authorities.

Final consumers will pay the tax upon purchasing the taxable goods and services. Not all goods and services will be charged to tax. They will be classified into three main categories viz: taxable, zero-rated and exempt.

Taxable goods and services

Consumers will be charged GST at the established rate of 4%. A GST registered business will charge GST at the same rate on the sale of taxable goods and services and pay GST on its purchases.

Zero-rated goods and services

The final consumer will pay GST at a rate of 0%. This essentially means that no tax is charged on consumers on the item. A GST registered business will be able to claim a credit for any GST paid on its inputs.

Exempt goods and services

No tax is charged on the consumer. Unlike the zero-rated goods, the GST registered business is not entitled to claim any input tax credit on purchases.

How will GST affect you, the consumer?

Since the current sales and service tax are at rates exceeding the GST proposed rate of 4%, the final prices of these goods and services are not expected to see an increase.

The prices of goods and services which currently have little or no taxes will increase slightly. Some goods and services will be exempted from GST and others taxed at a zero rate.

The latter category will cover essential goods and services; the measure is to shelter the lower income group from the effect of the tax. The list of exempt and zero- rated items has yet to be released.

Businesses in general need to understand the detailed rules and consider how these would apply to their own business operations.

Failure to do so may result in the loss of the set-off or credit for input taxes suffered and/or being exposed to onerous penalties for non-compliance with the law.

Wednesday, February 24, 2010

SC to amend guidelines for unit trusts


KUALA LUMPUR: The Securities Commission (SC) will soon be making amendments to the guidelines for the unit trust industry to allow for greater flexibility and choices to meet investors’ needs, said chairman Tan Sri Zarinah Anwar.

She said the unit trust industry was developing rapidly and that there was a need to innovate and find new ways of doing things.

“Investors also need more choices. The idea behind the amendments is to allow greater flexibility in terms of offering more choices to investors to meet their needs,” Zarinah told reporters after the Edge-Lipper-Malaysia Fund Awards 2010 presentation yesterday.

The SC chief said that among the key changes was allowing multiple currencies for unit trust funds.

“In the new guidelines the Securities Commission will allow offerings to be made in multiple currencies to encourage unit trust funds to be distributed overseas.

“It will help facilitate greater investment, say, by foreign investors who may find it difficult to cope with the exchange rate vagaries. So if they can invest in their own currencies the changes will then facilitate greater investments,” Zarinah said.

On the timeline for the amendments, she said: “It’s being worked on and as soon as we get the amendments ready the Securities Commission will be publishing it.”

On recent cases of corporate high-flyers that did not abide by the Mergers and Takeover Guidelines to take listed companies private, she said the SC would review the situation.

“If there is a need to change then the revision will be made but with any changes we will consult the stakeholders involved and make it public as soon as we are ready,” she said.

On the unit trust industry, Zarinah said that in December 1993, the country had 43 funds with a total net asset value (NAV) of RM28.1bil but by end-2009, the industry had grown to 541 funds with a total NAV of RM191.7bil.

“The NAV makes up 19.18% of the capitalisation of our stock market,” she noted, adding that there were now 14 million account-holders in a variety of fund categories.

At present, there are 201 funds with exposure to foreign investments representing 10.17% of the total industry NAV.

“The net sales of RM24.8bil for the industry in 2009 represented an amount close to the entire NAV of the industry as at Dec 21, 1993,” she said.

Zarinah said by all accounts, Malaysia’s unit trust industry had done extremely well.

“The challenge now is to sustain this performance and develop the depth and breath of the industry. Supporting this effort is high on the Securities Commission’s agenda,” she said.

Zarinah said one of the top challenges ahead was assuring investors that their investments would receive the appropriate levels of protection and oversight.

Another major challenge was to provide a facilitative regulatory framework for unit trust funds to operate, she said.

Should one invest in bonds?

Personal Investing - By Ooi Kok Hwa

MOST retail investors in Malaysia may not be familiar with bond investing. We may have come across bond funds in our unit trust funds investment, but, not many really understand why and how to invest in bonds.

A bond is basically a loan to government units or corporations that issue the bond. When you invest in bonds, you become the lender to the issuers. In return, you will periodically be repaid a pre-specified percentage of interest for the use of your money and when the bond reaches the maturity date, the principal that you invested earlier will be paid back to you.

For example, if you have invested in Bank Negara’s Bond Simpanan Merdeka 2009, which has three-year tenure and pays 5% of interest per year, you will receive a stream of interest income on a monthly basis and at the end of the third year, you will also get your principal back.

However, bond funds differ from individual bonds in many ways. While the interest income from the fund changes over time, the interest payments from individual bonds are usually fixed.

As a bond fund is made up from a pool of bonds, it usually does not have a fixed maturity and its yield is based on current income relative to its net asset value (NAV) while individual bonds are quoted in current yield or yield-to-maturity. In addition, bond funds normally make interest distributions monthly or quarterly, whereas individual bonds pay interest semi-annually.

The main purpose of investing in bonds or bond funds is to provide portfolio diversification, which in effect, helps lower your overall investment portfolio risk.

In general, bond funds have lower risk compared with equity investment and normally, bonds have low correlation with equity investment. While equity tends to perform well in high inflation rate and high interest rate environment, bond performance is unsatisfactory under such circumstances.

However, when the economy is bad and equity is not performing well, a lower interest rate tends to spur the economy, and at the same time, benefits bond returns. So, in most periods, it has negative correlation with equity interest.

The price movement of a bond is driven by a few factors. However, the main determinant is the interest rate. When the prevailing interest rate goes up, the price of the outstanding bonds will fall and vice versa. Therefore, the highest risk in bond investing is also the interest rate risk.

Duration is a measure of interest rate risk, which is defined as the weighted-average time it takes for a bond to pay back its interest and principal. By taking the duration of a bond or a bond fund times the change in interest rates, you will get the approximate percentage change in the bond’s price or the bond fund’s net asset value.

For example, if a bond fund’s duration is 10 and interest rates fall (or rise) by 0.5 of 1%, the fund’s NAV will increase (or decrease) by about 5%. As the duration of a bond is its average maturity, it measures interest rate risk.

When the inflation rate of a country increases, it will also result in higher interest rates to counter the inflationary pressure. Due to the recent global financial crisis, countries like China implemented stimulus packages, which in turn caused these countries to face potential inflationary pressure from higher asset prices.

Given that some economists have predicted that our interest rates may go up again, it is safer to buy bond funds with shorter duration because the bond funds will suffer a lower drop in prices with higher interest rates.

Other than interest rate risk, investors must also be aware of any potential credit risk of the bonds held by the bond funds, which is the possibility of the issuer failing to meet its obligations under the indenture or the risk of a bond being reclassified as a riskier security by credit rating agency.

It is a major problem during economic crisis or financial crisis, especially in the case of corporate bonds. However, given that our economy is currently at its recovery stage, credit risk may not a major issue.

As investors, before we invest in any bonds or bond funds, we must at least make the effort to understand the basic characteristics of the bonds that we are going to put our money in. Even though it is said to be safer than equity investments, there are still certain risks inherent in bonds investments that we must be aware of.

Friday, April 3, 2009

Dr M: Don’t Bail Out Failed Banks


LONDON: Tun Dr Mahathir Mohamad has called for the closure of banks that caused the global financial crisis instead of bailing them out.

The former prime minister lambasted the West for pumping in billions of dollars to resuscitate these “failed institutions”.

He said they should be allowed to go under as bankers were rewarding themselves with fat bonuses rather than be punished for their inefficiencies.

“Let’s start new banks. We don’t need to have banks with those names anymore as they are a disgrace,” he said in his talk ‘The Alternative G20 Agenda: Real Financial Fairness’ at the Royal Commonwealth Society here on Wednesday.

More than 200 people attended the event on the eve of the G20 summit.

In his usual hard-hitting style, Dr Mahathir said there should be no attempt by governments to rebuild institutions which have failed.

“If they must dole out money, give it to the people who suffered actual losses due to the banks’ failure, but not to the bankers,” he said.

He questioned the logic of rewarding bankers who caused the economic crisis, saying those who created trouble were normally put in prison.

Dr Mahathir also took a dig at hedge funds, saying their borrowings should be limited and not be 20 or 30 times more than the investments.

“Imagine if a hedge fund were to borrow US$30mil and trades on US$20mil based on a US$1mil investment, the profits would be far bigger than that of the original investment,” he said.

He said a stop should be put in creating money out of nothing, adding everyone must come clean instead of obtaining false wealth through shuffling papers. “Most of the wealth comes from playing around with money. You can sell currencies and make tons of money,” he said, adding they were not derived solely from producing goods and services anymore.

He called for a review of the international monetary, financial and banking system which had suffered a systematic collapse due to gross abuses.

Dr Mahathir said the global community could elect people to represent the differing economies and work together in curbing financial abuses.

“If we’re going to be fair – real financial fairness – we should give everybody a say in the formulation of a new banking, financial and monetary system.”

G-20 Leaders Blacklist Malaysia As One Of 4 Tax Havens

LONDON: Four nations were blacklisted as uncooperative tax havens after G-20 leaders declared the age of banking secrecy was over and said they would no longer tolerate shady havens draining away badly needed tax revenue.

At the request of the Group of 20 summit of rich and developing nations, the Organization for Economic Cooperation and Development named the Philippines, Uruguay, Costa Rica and the Malaysian territory of Labuan as the worst offenders, saying they had refused to adopt new rules on financial openness.

Leaders also said Thursday that nations that refuse to exchange tax information could in the future face tough sanctions - including the withdrawal of financing by the World Bank or International Monetary Fund.

"The time of banking secrecy has passed," French President Nicholas Sarkozy said following the summit. "Everyone around the table wants an end to tax havens. Everyone knows we need sanctions."

The announcement reflects mounting concern that banking secrecy in tax havens has helped to worsen the economic crisis by disguising the true value of some global assets.

Anti-poverty activists say such places provide corrupt officials places to stash illicit funds, often depriving poor nations of needed resources.

The OECD has divided countries into three categories: those who comply with rules on sharing tax information, those who say they will but have yet to act and nations which have not yet agreed to change banking secrecy practices.

Switzerland and Liechtenstein, which both have strong banking secrecy traditions, said last month they would adopt international rules on tax cooperation and were ready to comply with G-20 demands.

Liechtenstein, Switzerland's tiny Alpine neighbor, said it has already met with British officials to prepare for the new standards. Monaco said earlier that it would be more transparent with foreign tax authorities.

In return they were spared the fate of being blacklisted but were left in a gray area of countries that still have to implement their commitment to accept new information-exchange standards. China supported the blacklisting, but would not agree to have two territories, Hong Kong and Macau, classified as uncooperative tax havens.

Potential sanctions for transgressors include extra audits of those who use tax havens and curbs on tax deductions claimed by businesses using the territories.

In their communique, leaders said they may consider further penalties in their bilateral relations with tax haven territories. German Chancellor Angela Merkel said Brown and President Barack Obama played a key role in pushing for a crackdown on tax havens.

At least 35 offshore tax havens, from Britain's Channel Islands to the Cayman Islands in the Caribbean, are under increasing pressure to provide more information to international authorities to prevent people from evading taxes or hiding income by shifting money to such places.

Stephen Timms, financial secretary to the British Treasury, said a culture of banking secrecy had worsened global economic problems.

"That lack of transparency - that opaqueness - has contributed to the severity of the problems we are seeing in the world economy at the moment," he said. - AP

Najib Sworn In As Malaysia's Sixth Prime Minister

KUALA LUMPUR: Datuk Seri Najib Tun Razak was sworn in as Malaysia’s sixth prime minister Friday, taking over from Datuk Seri Abdullah Ahmad Badawi who stepped down after leading the country for over five years.

Najib 55, took his oath of office before Yang di Pertuan Agong Tuanku Mizan Zainal Abidin at Istana Negara.

Dressed in a black baju Melayu complete with sampin, Najib arrived at the palace, accompanied by his wife, Datin Seri Rosmah Mansor. Together they entered the Balairong Seri at 10am, followed by Abdullah and his wife, Datin Seri Jeanne Abdullah.

Najib signing his letter of appointment as Prime Minister.

A total of 319 guests, including former prime minister Tun Dr Mahathir Mohamad and his wife, Tun Dr Siti Hasmah Mohd Ali, attended the historic event.

The ceremony, steeped in tradition, began when Tuanku Mizan and Raja Permaisuri Agong Tuanku Zahirah entered the throne room at 10.05am and the national anthem was played by the Malaysian Armed Forces band.

After taking his oaths of office, loyalty and confidentiality, Najib signed the four instruments of appointment, followed by the reading of the doa selamat.

The instruments of appointment were then signed by Court of Appeal President Tan Sri Alauddin Mohd Sheriff as witness and handed over to Chief Secretary to the Government, Tan Sri Mohd Sidek Hassan.

At the same ceremony, Abdullah was conferred the nation’s highest award, the Seri Maharaja Mangku Negara (SMN), while Jeanne received the Seri Setia Mahkota (SSM) by Tuanku Mizan. Both awards carry the title Tun.

The handing over of the prime minister’s duties from Abdullah to Najib is scheduled to take place at 4pm at the Prime Minister’s Office in Putrajaya.

Najib was born in Kuala Lipis, Pahang, on July 23, 1953, and is the eldest son of the late Tun Abdul Razak Hussein, the nation’s second prime minister, and Tun Rahah Mohd Noah.

His appointment is most significant in the country’s history in that this is the first time that a prime minister’s son is holding the post.

His leadership capability began to surface when he was elected Pekan Umno division Youth head in 1976 and he went on to become the country’s youngest Member of Parliament at the age of 22 when he won the Pekan seat unopposed in a by-election following his father’s death.

He then went from strength-to-strength in politics and Government to reach the pinnacle as Umno president and Malaysia’s prime minister. - Bernama