Business

Thursday October 8, 2009

Bold steps needed for Malaysian budget

Making a Point - By Jagdev Singh Sidhu


THE time before Budget 2010 is unveiled is often marked by a great deal of suggestion and lobbying.

We have heard talk about the introduction of a goods and services tax and like clockwork, industrial lobbyists and tax experts would hypothesise their thoughts on what the budget should contain.

As usual, the Government’s suggestion box would be stuffed with proposals for tax cuts and policy changes aimed at making the country more competitive and a more attractive place to do business.

This time around, the Prime Minister has asked the people to give their input and the public has not been shy about doing so.

So far, there are 423 comments on his website and many of them are viable and worthy suggestions.

If people out there are gladly giving their 2 sen worth, so should I.

First off, there is a need to rein in expenses and the deficit and amid talk that the Government wants to strengthen its tax base, there are a number of steps the Government can look at to raise its revenue.

Taxing the productive sector is generally considered a no-no as that would be counterproductive.

Radical steps should be taken and the most obvious one is sin taxes.

Taxes on alcohol are already one of the highest in the world but taxes on cigarettes are strikingly low in comparison.

Taxes on cigarettes should be raised so that it becomes financially punitive for many to buy a pack.

Money raised from cigarette taxes should be ring-fenced to pay for the health treatment for all Malaysians, and for anti-smoking campaigns.

The Government should next look at reintroducing property gains taxes.

Such taxes, although they would not harm real demand for people to buy houses, would ensure that speculators share a decent size of profit with the Government should they flip homes for a quick buck.

Property gains taxes should be on a reducing rate the longer a person holds onto a property.

Such a tax may be viewed as a defence mechanism against skyrocketing property prices, which is something most people can do without.

Even though the amount of money collected from property gains tax might not be significantly large, every sen counts when a country is running huge budget deficits.

Another revenue-generating but controversial mechanism is capital gains taxes on share trading.

Such taxes exist in many of the world’s top stock exchanges and is not a deterrent to equity investing.

Its revenue-generating potential could be large, given the recent average daily trading value has been well over RM1bil.

To encourage longer-term shareholders and true investors, capital gains taxes on share trading could be dispensed away with if a person, or company, say, holds a company’s shares for more than a year.

Next would be cars. Most people would love to see such taxes lowered significantly but what I am suggesting is a huge reduction in the price of hybrid and electric cars.

Such cars should be cheap enough so that people who can afford to buy cars at today’s high prices would opt for such fuel-saving vehicles, thus not only prolonging the fossil fuel resources of the country but also reducing the Government’s subsidy bill.

And to encourage people to move up the value chain or to acquire more skills, the cost of attaining such eduction should be used to offset a person’s taxes.

Finally, it’s well known that the Government has become too dependent on the petroleum dividends and taxes it gets from Petroliam Nasional Bhd (Petronas).

Taxes and dividends from petroleum accounts for about 40% of Government revenue and Petronas has given the Government RM471bil since the company started operations 35 years ago.

To ensure the future sustainability of the country’s finite oil reserves, the bulk of the money – most of the money generated since the oil price boom – should be put into a heritage fund, much like Norway’s Petroleum Fund.

By doing so, the vast amount of oil money generated by Petronas – payments to the Government in the past five years alone was RM268bil – would be used for future generations to fund development once oil resources are depleted.

● Jagdev Singh Sidhu is a deputy news editor at The Star. He secretly wants the Government to declare a tax holiday for individuals next year.

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