Budget 2014_??????

Most Malaysians were more anxious about our most recent Budget 2014 than budgets of previous years; especially with Fitch downgrading our sovereign credit outlook, similarly so was yours truly. Below, some that caught my attention.

1. GST

The Goods and Service Tax(GST) will be implemented on 1st April 2013 at 6%. A consumption tax, it will be zero rated for basic food, domestic water, 200 units of electricity, transport services, residential properties, tolls; exemptions will be for education, healthcare and financial services.

Our fiscal deficit and debts have been too high and with the GST implementation, the government's coffers will improve. Let us hope that the additional tax collected willl be put to good use (improving the economy, fighting crimes and corruption, better education, health care and transportation) instead of some illegitimate or some undeserving pockets. Being a broad base tax, GST will hit all consumers. So how will the poor cope?

Assuming that most consumption from the lower income, for example rice, meat and other essential items are zero rated some will still fall under the GST net. Assuming that only RM400 of their monthly expenditure is subjected to the 6% GST, that works out to be RM288 per year, the one-off cash assistance would cover that nicely. But what if it is RM800, the monthly GST that they will be paying would be RM48 or RM576 per year. Depending on the list of goods zero rated and those exempted, (details of which would be disseminated) it could be much higher. Hopefully, the list of zero-rated goods and services will be long, as even exemptions may have some tax depending on their inputs.

How badly GST will affect the poor waits to be seen, hopefully there will be measures to relieve the poor and the struggling middle class too.

2. Sugar Subsidy

Sugar subsidy has been removed and the price per kg. now stands at  RM2.84, up by 34 cents. It is a healthy move, too many of us are taking too much sugar. There should not be any price increase in our drinks or food.

A tablespoon of sugar is approximately 12 -13 gms., Even if assuming it is 14 grams to 1 tabsp, a kilogram of sugar would give you about 70 tablespoons of sugar, each tabsp of sugar will cost at the most 0.5 (half) cent extra with the subsidy removal of 34 cents. On the same note, if you do not want any sugar in your drinks, you become healthier and you save +/- 4 cents. But I am sure you would not ask the poor vendor to reimburse you 5 cents for your sugarless drinks.

3. Real Property Gains Tax(RPGT)

RPGT has been increased to 30% for properties disposed within 3 years, 20% for the 4th year, 15% for the 5th year, and tax free after 5 years for Malaysians(individuals). Foreigners are subjected to 30% RPGT for disposal within 5 years, thereafter it will be at 5%. Companies too will have to pay 5% from the 6th year. Someone I know was asking why is it 30% and not 50%? Why not when properties are have risen so much that most of us are finding it difficult to own one. Hooray! for the prohibition for Developers Interest Bearing Scheme. Hooray! too for measures to boost affordable housing. I think it is a bit too little and a little too late for some of us.

4. Foreign Ownership of Properties

The minimum price of properties that can be purchased by foreigners has been raised from RM500,000 to RM1 million. Is it high enough? Not for some locations.

5. Broadband Phase 2

RM3.4bil allocated for high speed broadband. That is just great, isn't it, hope we do not have to wait too long for the roll out. How many of us have been experiencing broadband speeds that literally makes us so very mad!

6. For the Middle Income Earners

A special Tax Relief of RM2000 for tax payers earning up to RM8000 per month for year 2013. The  tax rates for various income tax brackets and maximum chargeable threshold has been amended, but the date of implementation is unclear.

  

:-) Well, go shopping early for those items that will be subjected to GST before implementation date, those big item purchases and that you cannot do without or have been thinking of buying. Buy less of those that you can do with less if you have to pay for GST after 1April 2014. My guess is that consumption for Christmas and the coming Chinese New Year will be higher. Maybe I should upgrade my hand phone now too. 

Wonder how GST will affect home renovations? That would fall under residential properties, so material and labour inputs are tax free? What about renovations for non-residential properties? The small contractor will have more clerical work segregating their accounting. 

Private Retirement Scheme (PRS)

Unless you belong to the super rich, most of us would welcome an opportunity to further increase their retirement funds.

The Private Retirement Scheme, for any individual was recently launched. It is good for individuals who do not have EPF contributions for their retirement or do not have sufficient funds for their retirement.

The scheme comes under the purview of the Securities Commission. The Capital Market Services Act 2007 (CMSA), the Capital Market Services(Private Retirement Scheme Industry) Regulations 2012 and the PRS Guidelines form the framework governing the PRS Industry in Malaysia.

It is a voluntary investment/savings scheme that would allow employees and the self-employed to save and contribute more toward their retirement nest egg. This is supplementary and additional to the statutory EPF contributions, and will help in enlarging the retirement nest egg, particularly in view of the longer life expectancy and rising cost of living.

The PRS will be available to the public by end of the year.(how about Sept/Oct?)

Contributors/Members

It is available for Malaysians and foreigners 18 years and above.

It is something that employers could use as an incentive to attract and retain talent. Contributions to the PRS are in addition to EPF contributions and tax deductions can be above the 19% tax deductible EPF contributions.

For employees, persuade your kind and understanding bosses to contribute to the scheme…It would work to their benefit too in the longer term besides, they can lay claim to being one of the first to offer such incentives to their employees….

All individuals who invest in a PRS product are entitled to a tax relief of up to RM3, 000 per year. (this will be for 10 years).

Individuals have the option to contribute any amount (although providers may specify a minimum amount) and contributions do not have to be on a fixed basis. No fixed amount, no fixed time interval. However, it is advisable to follow a Ringgit-cost-averaging to smooth out price fluctuations. (meaning, best to contribute on a regular basis).

Members will have to open a PRS account. The account could be opened through your PRS Provider or with PPA. (Private Pension Administrator). You can choose more than one PRS Provider and contribute to more than one fund. The account structure is split into:

 i)                  PRS Account A

with 70% of contributions made and 

The amount accumulated in PRS Account A have to be kept till retirement age or if the member leaves the country permanently

ii)                   PRS Account B

With 30 % of contributions made.

You can only withdraw once a year from PRS Account B and your first withdrawal has to be a year from your first contribution.  How much can you withdraw? Any amount but you will have to pay a penalty tax of 8% on your withdrawals and a fee of RM25 for each withdrawal.

PRS Providers

PRS Providers (Fund management companies) need to get their approval from the Securities Commission to launch their schemes.

AmInvestment Management Sdn Bhd American International Assurance Bhd CIMB-Principal Asset Management Bhd Hwang Investment Management Bhd          ING Funds Bhd                                    Manulife Unit Trust Bhd Public Mutual Bhd RHB Investment Management Sdn Bhd

these are the 8 currently approved PRS Providers

  

As a start, employees or individuals have a choice of selection of at least 24 conventional/core funds provided by the approved 8 PRS Providers, (investment fund managers) and these would be available to the public from September 2012. These fund providers are licensed and approved by the Securities Commission.

Each PRS provider will provide a range of investment funds for individuals to choose according to their risk appetite, retirement needs and time line.

Each PRS provider will have a minimum 3 core funds catering for growth, moderate and conservative risk profiles.

For feasible reasons and to be pragmatic, PRS providers are permitted under the Securities Commission guidelines, to channel contributions to their existing feeder funds (unit trust funds or investment-linked funds) in the early years. This is during the early stage of development as the fund’s size will take some time to grow to a size where they are able to invest directly in the asset classes.

If a person opens and contributes to a PRS account and has selected his/her PRS provider without indicating his/her investment choice, the default investment choice will be selected for the individual as indicated below:

	Growth Fund	Moderate Fund	Conservative Fund
Age Group	Below 40 years of age	40 – 50 years of age	Above 50 years of Age
Parameters	Maximum 70% Equities Investment outside Malaysia is permitted	Maximum 60% Equities Investment outside Malaysia is permitted	80% in debentures/fixed income instruments of which 20% must be in money market instruments and a maximum of 20% in equity Investment outside Malaysia is not permitted

Source : Private Pension Administrator

The returns from contributions made to PRS are not guaranteed and will depend on the performance of the PRS funds. There are always risks to investments and returns almost always commensurate with risks.

Investment policies of the funds are guided by the PRS Guidelines consistent with prudent spread of risks and to develop a retirement fund. PRS funds can invest directly in real estate, this is unlike unit trusts.

All income received are tax exempted. Switching funds within a PRS Provider is permitted. Change of PRS Provider is subject to terms imposed by the Provider, but experts advise to stay with a provider for a minimum of three years.

The upfront fee for PRS funds is capped at a maximum 3%.

Members’ assets are protected under the controls of an independent trustee company

PRS distributors require approval of the SC to operate and will be subject to on-going regulatory requirements and supervision

 

Private Pension Administrator (PPA)

The Private Pension Administrator (PPA), regulated by the Securities Commission will oversee the PRS providers or fund managers. Its administrative functions would include, taking care of the database, essentially keeping records of all transactions by contributors. Contributors can extend their queries to PPA.

Happy Retirement

I am sure the people at large, are appreciative of this scheme. To ensure the scheme is a success, the interests of members are to be safeguarded. Regulations, adequate guidelines and supervision would ensure the goals and objectives of members are realized. More importantly, those charged with the requisite mandate must always bear in mind the long term objective of members.

To find out more on Private Retirement Scheme (PRS) kindly click on the following links:
 

http://sc.com.my/       or            http://www.ppa.my/

 

The Dabbawallas of Mumbai

When I wrote about minimum wages and productivity, I could not help but recall a news reporting that I had stumbled across. The Dabbawallas story, was, still is a chronicle of achievement, and I was utterly impressed by their commitment, discipline and teamwork. They received a Six Sigma Performance rating of 99.9999%, or having only one error in 6 millions deliveries.

Six Sigma is a performance measurement strategy. It is an methodology that works on elimination of errors for better efficiency.

From the suburban homes, where the food is being prepared and delivered to the offices of Mumbai (Bombay) Dabbawallas work together as a team to bring food to the masses of office workers. Dabba meaning lunch box, and Walla meaning man.

What started out as a simple delivery service for catered food more than 100 years ago, is now a world renowned.

These very special, Dabbawallas, or lunchbox man started the day filling up their Tiffin carriers with the food ordered in the suburbs, identifying each customer by simple colour and codes. These tiffin carriers are then transported by bikes, rail, motocycles and finally delivered to the lunch recipients in their offices.

Each working day, 5000 Dabbawallas deliver 200,000 home make meals for less than $10 a month. They first leave the homes where these lunch meals are prepared heading toward the first railway station. They were then sorted at the railway station and boarded onto the luggage carriage. The 3^rd Dabbawalla will travel with these lunches to their nearest destination. These lunches were then picked up and delivered by another Dabbawalla and delivered to their various destinations. The empty lunch boxes are then returned to their original location in the evening in a reversal of the earlier journey. Each Dabbawallas travel approximately 70 miles each day.

Food for lunch anyone? Food for thought too for Malaysians to get ‘unstuck in the middle,’ and strive to become a high income economy.

Watch a Business Lesson by cbsnews.com on Dabbswallas, the Indian Lunch Carriers on youtube, at http://www.youtube.com/watch?v=OxfHB5wPWeQ

Wages and Higher Income for Better Distribution of the Economic Pie

After I had posted an article on “Minimum Wages, Productivity and Inflation.” I came across an article in the Star newspaper, (Seah Chiang Nee, Insight Down South) on a somewhat similar issue.

Singapore’s former National Wage Council chairman, Professor Lim Chong Yah was reported calling for a national wage strategy to close the economic gap. “To narrow the economic gap between the rich and poor, Mr. Lim had suggested a shock wave therapy, to raise the monthly salaries of workers who earn S$1,500 (RM3,680 or less by 50% over three years.”

Professor Lim’s proposal on raising salaries of those earning S$1500 or less by 50% and a simultaneous freeze on those earning more than S$1500 a month over a 3 years time frame created some commotion.

Some Singaporeans were happy, others not so happy. Professor Lim said that Singapore’s lowest paid workers has been underpaid because of the influx of cheap foreign workers.

Doesn’t that ring similarly for us Malaysians too? We need to have a more equitable distribution of income to raise living standards for our poor and middle classes too.

For my earlier comments on minimum wages, kindly click on the link :

Minimum Wages, Productivity and Inflation

Minimum Wages, Productivity and Inflation

Recently, there has been many discussions, and under the National Wages Consultative Council Act 2011, we would have a minimum wage not long from now. The Council is empowered to review and recommend minimum wages.

You could very well say that as a retiree how would a minimum wage affect me. You are right on that. I had worked as a Human Resource Manager before, and I wholly support a minimum wage as I cannot believe that any worker, even an unskilled one could live meaningfully on a wage that has been lower than our proposed, supposedly minimum wage of RM800 to RM1000. I do believe an unskilled worker who is doing an unattractive job should be paid more and have the means to enjoy a better lifestyle too.

Much has been said about matching productivity with wages. Besides skills training that could help to improve productivity levels, having the correct attitude is imperative too.

It is also about being passionate and trying to do a good job whatever your career call or job.

If we are to be a high income economy, we could not afford not to start with better pay for our unskilled labour. Relying on foreign workers is not good for us in the longer term.

When their home countries progress and develop further, these foreign workers will find better home opportunities than what we have to offer if we do not progress and move up the rung to a developed nation status. We definitely cannot scour country to country for foreign workers to keep our costs down to be competitive.

We have to work on productivity improvements, through more output per unit or per worker. We need to invest in better machines, technology, processes and innovation to improve output and product. Productivity has deeper correlations to education, skills training, value systems and utilization of investments. Productivity increase is better assured with the right education as well as the proper value system.

Inflation

Inflation does not necessarily follow when you have more money in your pocket. You have to distinguish your needs and wants and to work together in bringing cost of goods and services to reasonable levels and not raise them indiscriminately. An increase in the supply of the requisite goods and services that would see a rise in demand would help to keep prices under control too. Having more in their pockets now does not mean the worker will spend all he/she has; they may decide to save the extra for rainy days if prices do not go up too much to affect their purchasing power.

Better Living Standards

I hope that with the minimum wages in place, we could set off a race to raising our living standards for everyone. It should be high enough to improve our purchasing power and living standards and low enough to remain competitive. I personally feel that there should be less wage disparity between the different groups of skilled and unskilled labour. Having said that, does not necessarily mean that a worker with better qualifications will not qualify for higher pay, just not so high. I do hope that the unskilled worker with a minimum wage would be feel appreciated, be committed to what he or she is doing and proud of their contributions to the economy.

After all, who then would take up the unattractive jobs and help keep the cogs turning.

Renewal, Sustainable Energy and FiT (Feed-in-Tariff)

Someone was asking me about it and I have to admit it, I know nothing about sustainable energy till I read some recent articles in the newspaper.  Still do not know much, but enough for me to appreciate what the Renewal Energy Act 2011 and the Sustainable Energy Development Authority (Seda) Act 2011 is about.

The Renewal Energy Act 2011 purview is on energy management, Sustainable Energy Development Authority (Seda) Act 2011is on implementation and management of FiT.

These 2 Acts put Malaysia into a new phase of renewal energy. It is a start however small it is, a step forward to sustaining our energy requirements, and renewal energy is heading toward a target share of 5.5% of our total energy needs by 2015.

Our power or energy generation, currently dependant on oil, gas, coal and hydro will now have an additional RE (renewal energy) source, that could be generated either from biogas, biomass, small hydropower or solar photovoltaic.

As from 1^st December, consumers of more than 300 kWh a month will have an additional 1% feed-in-tariff (FiT) charge on their electricity bill.

A ‘feed-in-tariff’, is an incentive scheme that collects the 1% (in Malaysia) charge from consumers and uses it to pay a premium price above our current utility charges (by TNB) to anybody who is producing or generating renewal energy. This is to encourage the adoption of renewal energy. The renewal energy is generated and upon signing an agreement between both parties will be fed into the energy grid of the electricity utility company.

Modus Operandi

If you intent to produce or generate renewal energy at your premises, be it home, office or factor, you will need to invest substantially in a renewal energy system.

You will need to apply to Seda for the feed-in- approval license, (Feed-in-Tariff (FiT)). Once the application is duly verified in compliance with requirements of the Act, you will receive a FIA certificate.

Thereafter sign an agreement with your distribution licensee for connection of the renewal energy to a supply line connection point.  The electricity utility company (TNB) or distribution licensee is obliged to buy the renewal energy from you (at a pre-set premium price) and feed the renewal energy into their energy grid.

The feed-in-approval holder will have to submit a certified copy of the agreement to the Authority (Sustainable Energy Development Authority Malaysia) for registration.

photovoltaic panels

For more information on this, kindly click on the link : http://www.seda.gov.my/ 

Competition Act 2010

This isn't very fair, is it?

Our Competition Act 2010 will start rolling on 1^st January 2012.

The Act (in the US, they have their Anti Trust Laws) basically is to promote fair competition.

The Competition Act 2010 strives to provide a business environment that ensures fair play, without favoritism, deter abuses by major industry players or anyone for that matter. It will help promote a market environment and check monopolies. A free market environment will promote fair competition and do away with any barriers to entry.

Free market,‘jangan pakat’, no partnering to benefit themselves at the expense of consumers.

Hopefully, the leveling of playing fields and fairness in the provision of goods and services will bring about dynamic competition, innovation and improve competitiveness. This will ultimately benefit the public or consumers and small businesses.

This is also an opportunity to enhance our productivity, skills and competencies and businesses can then become more globally competitive, especially in the current challenging economic environment.

Bear in mind, though that competition too can destroy those who are inefficient, slow to response, not strong enough nor competent enough to embrace the challenges.

Adopting the right practices to improve productivity, processes, new techniques and to innovate will be necessary to fight competition and move Malaysia forward toward a successful direction for the future.

Where are we heading as stocks tumbled further

It has been said that there is now a more than 50% chance of a 2nd recession in the US.
Are the governments running out of rabbits in their hats? What is being said about the downgrading of the US sovereign debts?


'Is America still the stable, reliable country it once was, or is Standard & Poor's economic analysis US$2 trillion off the mark.' Check out the original article by Professor Paul Krugman.



Professor Nouriel Roubini , 'The S&P's downgrade of US sovereign debts has added to global financial stress and significantly increased the risk of a double dip recession, aggravated by the sovereign debts of Spain and Italy.'



Leehwa : How low and how long will it go? How far and wide is its reach?Is it too soon to be accumulating stocks here in Malaysia? We are not immune to a global recession. Who is going to do the rescue?

Quote Philip Finch, a global bank strategist for UBS, 'What we need is comprehensive, co-ordinated and credible plan', to get over this turmoil.

Click for more : New York Times.com/2011/08/11_Financil Turmoil