Saturday, September 21, 2002

2003 Budget at a glance

1. No new taxes, no increase in existing taxes
2. One month bonus, with minimum of RM1,200 for civil servants.
3. Corporate tax for SMIs to be cut from 28% to 20%.
4. Free multipurpose smart cards (MyKad) for all Malaysians.
5. RM5 billion allocated for teaching of Science and Maths in schools from 2002 to 2008.
6. RM979mil to be spent to equip teachers with notebook computers, projectors and related equipment.
7. Paternity leave for civil servants increased from three to seven days.
8. RM 100 million fund to help the poor with chronic illnesses, government to give ringgit for ringgit matching grant.
9. 10-year tax exemption for foreign firms setting up headquarters in Malaysia, no tax for expatriates on incomes from services rendered abroad.
10. RM 1 billion fund to encourage venture capital entrepreneurs in non-ICT fields
11. Stamp duty for transfer of property between spouses and from parents to children to be cut by 50%.
12. Tax exemption on compensation received by retrenched workers raised from RM4,000 to RM6,000 for each year of service.
13. RM 87.8 million to aid students from poor families. 730,000 students to get RM120 each for uniforms and books.
14. Sales and service tax not collected by a company from clients to be regarded as bad debts and companies eligible for a refund.
15. Goods imported through KLIA to get exemption from import duty and sales tax from RM500 from RM200, except for cigarettes and liquor.

20 September, 2002

Malaysia's budget shuns broad corporate tax cuts

By Jalil Hamid

KUALA LUMPUR (Reuters) - Malaysia disappointed expectations of sweeping corporate tax cuts on Friday in a 2003 budget that forecast a narrowing fiscal deficit and accelerating economic growth of at least six percent next year.
While Prime Minister Mahathir Mohamad, acting as finance minister, delivered what was probably his last budget speech, the Ministry of Finance issued a report painting an upbeat picture of an economy that grew just 0.4 percent last year.
The ministry forecast growth of 4.0 to 5.0 percent this year and 6.0 to 6.5 percent for 2003.
That growth, not a round of spending cuts or tax hikes, was expected to lift the budget. Total revenues were forecast to rise 7.5 percent in 2003, to reach 89.79 billion ringgit.
Mahathir said the 2003 budget deficit, the sixth in a row, would be 3.9 percent of gross domestic product, down from 4.7 percent this year.
"As far as the broad policy is concerned, I think they are hitting the right buttons," said Wong Chee Seng, Malaysia strategist at DBS Bank. "(A budget deficit) of 4.7 percent to 3.9 percent of GDP next year is something positive.
"...I think the disappointment here is the corporate tax rate. The cut didn't materialise."
Mahathir said the decision to leave the corporate rate unchanged at 28 percent for all but small and medium-sized firms was due to higher effective rates among neighbours.
"Although our corporate tax rate appears high, Malaysia does not impose tax on dividends, unlike Taiwan, which imposed tax on dividends of 30 percent, Japan 30 percent and Thailand 10 percent," Mahathir said in speech delivered to parliament.
The exception will be for companies with paid-up capital of no more than 2.5 million ringgit ($660,000), whose corporate tax rate will fall to 20 percent for the first 100,000 ringgit of their income.
Singapore announced in May it was cutting corporate tax from to 22 percent from 24.5 percent in 2003 and the top rate in personal tax to 22 percent in 2003 from 26 percent.
The budget had little effect on Malaysian shares.
"There's nothing much for the big boys," said Lee Heng Guie, economist at Hong Leong Bank.
The market's leading index closed 0.4 percent lower at 672.64 points, having been down 0.5 percent before the ministry's report came out.
The report forecast broad-based growth in manufacturing, higher palm-oil production boosting agriculture, construction benefiting from ongoing projects such as the Bakun Dam in Sarawak and underlying demand for housing.
HSBC regional fixed-income analyst Dilip Shahani saw the budget as business-friendly overall but questioned the forecasts.
"The growth profile is a bit optimistic based on our underlying view that global economy is slowing down and risks of Iraq-U.S. And another risk event is the Brazil situation.
"We expect Malaysian growth to be 4.3 percent in 2002 and slow down a bit to 3.8 percent in 2003," he said.
Mahathir, expected to step down next year after running Malaysia for 22 years, has overseen the industrialisation of the country. As in other Asian tiger economies, exports have been the economy's main driving force.
Mahathir fixed the ringgit at 3.80 per dollar in 1998 to protect the country from the Asian financial crisis. As expected, the government left the exchange rate unchanged on Friday.