Optimism on auto sector running high

By EUGENE MAHALINGAM
eugenicz@thestar.com.my

Analysts follow MAA in revising upwards car sales figures for 2010

PETALING JAYA: Analysts are upbeat about the outlook of the local automotive industry for 2010, saying “the current state of the auto industry is one of optimism not seen since 2005.”

“We believe the TIV (total industry volume) will exceed our initial forecast of 546,000 units as consumer and business confidence improves,” said Kenanga Research in a report yesterday.

The research house said it was revising upwards its 2010 TIV forecast to 568,000 units from 546,000 units originally due to the commendable sales performance in the first six months of the year.

The Malaysian Automotive Association (MAA) has revised upwards its 2010 TIV forecast to 570,000 units from 550,000 units initially due to the stellar sales performance in the first half of the year.

File photo shows a woman walking past Proton car models on display at a showroom in Shah Alam. — AP

The TIV in the first half grew 19.8% to 301,077 units compared with 251,305 units in the previous corresponding period.

However, Kenanga said that it anticipated TIV in the second half of 2010 to “normalise” as the period was expected to be “seasonally slow.”

RHB Research, in its report, said it was maintaining its 2010 TIV growth forecast of 9.5% to 587,698 units.

“We are keeping our 2010 to 2012 TIV projections. We expect TIV to grow 9.5%, 4% and 3.2% in 2010 - 2012, following a 2% contraction in 2009,” it said.

TIV for 2009 was 536,905 units.

RHB Research said it was positive on the earnings outlook for local automotive companies, namely Proton Holdings Bhd, Tan Chong Motor Holdings Bhd, UMW Holdings Bhd and MBM Resources Bhd.

It noted that UMW was looking to increase localisation of its Toyota models, in particular the Camry by 2012 as part of the company’s RM170mil assembly plant upgrading programme.

“The Camry is currently assembled in Thailand and selling for between RM144,000 and RM174,000 as a CBU (completely built-up) unit. Once locally assembled, we believe this price would be brought down by at least 5% as import duty will no longer be imposed,” it said.

The research house also said UMW was looking at increasing the local content of its Toyota Vios, which had 40% local content.

RHB Research also said it was optimistic about the launch of Proton’sWaja replacement model in the final quarter of 2010.

The vehicle is expected to be similar to the Mitsubishi Lancer and priced RM20,000 to RM40,000 cheaper than the actual Lancer.

It also said Proton could be consolidating its plants in Shah Alam and Tanjung Malim and secure contract manufacturing to optimise plant utilisation which would further improve profitability via better cost control and economies of scale.

Sales of Toyota vehicles rose to 34,943 units in the first half of 2010 versus 30,147 units previously, making it the market leader in the non-national passenger car segment.

Sales of Proton vehicles increased to 80,051 units from 67,770 units during the same period.

RHB Research said it was also positive on the outlook for Tan Chong (which distributes Nissan vehicles) and MBM Resources (which has a 20% stake in Perodua).

Perodua sold 94,936 vehicles in the first half of 2010 compared with 77,045 units previously, making it the market leader in the local passenger market.

Sales of Nissan vehicles increased to 13,406 units from 11,220 previously.

An analyst from a local bank-backed brokerage said the TIV performance in the first half of 2010 was within expectations, adding that he had revised upward his forecast to 573,000 from 561,000 initially due to the good industry performance.

He said he was positive on the outlook of the local auto industry, noting that many car companies were offering low interest rates to boost sales.

http://biz.thestar.com.my/news/story.asp?file=/2010/7/22/business/6709333&sec=business

Government think tank proposes fuel hikes – 15 sen this year and RON95 to cost RM2.60 by 2015

MAY 27, 2010 AT 4:47 PM BY PAUL TAN FILED UNDER MALAYSIAN FUEL PRICES

PEMANDU, a government think tank led by Minister in Prime Minister’s Department Idris Jala tasked with formulating proposals to reduce the country’s government subsidy budget has recommended a petrol price hike of 15 sen for RON95 and 10 sen for diesel.

This is the petrol price hike schedule which we’ll be looking at, based on a crude oil forecast of US$73.06 per barrel in 2011 and the region of between US$79.41 to US$94.52 per barrel between 2013 and 2015.

• Current 2010 Price – RM1.80 per liter RON95
• Q3/Q4 2010 Price Hike – RM1.95 per liter RON95
• 2011 Price Hike – RM2.16 per liter RON95 (broken into 2 hikes, once per 6 months)
• 2012 Price Hike – RM2.20 per liter RON95
• 2013 Price Hike – RM2.34 per liter RON95
• 2014 Price Hike – RM2.52 per liter RON95
• 2015 Price Hike – RM2.60 per liter RON95

These are just the proposed hikes for RON95. RON97 was not mentioned in the recommendations, which indicates that the government is further decreasing priority on RON97 subsidies. We could see a price of way over RM3 per liter for RON97 by 2015.

Not only that, the proposal recommends that the government renegotiate the PLUS toll concession contract this year and the LDP contract by 2013, then all toll concession agreements must proceed without any subsidies, resulting in a toll hike of between 10% to 67% depending on the highway, distance, etc from this year onwards.

For those dreaming of a future of driving electric cars, electricity tariffs are to be untouched for those using less than 200 kWh for this year. However gas prices are proposed to be increased by RM3/MMBTU every 6 months, which will translate to an electricity increased of 1.6 sen/kWh every 6 months. If we take the Nissan Leaf’s 24kWh battery as an example, that’s a RM0.38 hike per full charge for the Nissan Leaf every 6 months. LPG, which is priced at RM24.50 has been proposed to be hiked to RM27 with a 20% price increase every year.

The proposal also spells out a “mitigation plan” which involves giving cash rebates of 126 ringgit for owners of cars with engines smaller than 1,000cc in capacity, and 54 ringgit for owners of small motorcycles. My reference source doesn’t mention of this is one time, monthly, or yearly. There is also a proposal for a 20% discount on toll charges for frequent users and a cash rebate of RM20 for anyone with a Malaysian IC – not sure what this cash rebate is for but I’m assuming it’s for fuel?

According to PEMANDU this will save the government about 3 billion ringgit this year, 14 billion ringgit next year, 21 billion ringgit in 2012, 29.5 billion ringgit in 2013 and 35 billion ringgit in 2014. These plans are yet to be approved by the government.

http://paultan.org/2010/05/27/government-think-tank-proposes-fuel-hikes-15-sen-this-year-and-ron95-to-cost-rm2-60-by-2015/

First round of cuts

PETALING JAYA: The Government has begun its first round of a gradual subsidy rationalisation programme, promising it would have minimal impact on families.

Describing the cuts as part of a “difficult but bold” decision to reduce fiscal deficit, the Government said it would still have to spend an estimated RM7.8bil on fuel and sugar subsidies this year.

Thus, effective today, prices of petrol, diesel, liquefied petroleum gas (LPG) and sugar have increased following a reduction of the subsidy.

Sugar is revised to an additional 25 sen per kg to RM1.90. LPG is up 10 sen per kg to RM1.85.

Petrol RON 95, RON 97 and diesel have gone up by five sen per liter. For RON 97, the Government has decided to withdraw the subsidy later and subject it to a managed float, where the price will be determined by an automatic pricing mechanism.

“This subsidy rationalisation will, according to estimates, allow Malaysia to reduce Government expenditure by more than RM750mil this year,” a statement from the Prime Minister’s Office said yesterday.

Details of the changes are available on the websites of the Prime Minister’s Office and Pemandu.

The Government also said the “long-needed” economic reforms would help Malaysia maintain the strong growth it had achieved to become a developed and high-income nation.

“We have begun a planned and fair reform of a subsidy regime that for too long has been ineffective in helping those who need it most and, over time, has become a barrier to Malaysia’s progress,” the statement read.

The prices of fuel and sugar in Malaysia would still be among the lowest in the region, it said.

It also said the Government made the decision about the subsidies following robust consultations with the people, citing the thousands of Malaysians who took part in policy labs and Open Day.

“As with subsidy reform, the Budget, the Government Transformation Programme and the National Key Economic Areas, the Government has made a determined effort to engage the public, listen and learn, and then act in the best interest of the nation,” it said.

Although Malaysia had weathered the global recession well, the Government said the country could not achieve its ambition to be a high-income nation by simply managing through a crisis.

“As the Government has consistently said over recent months, we must also implement subsidy reforms that will remove distortions in the marketplace and enable us to better target our resources on those most in need, and on investments that will provide lasting benefits for Malaysians.”

It assured that the savings from the reforms would allow for resources to be better channelled for families, communities and business growth.

“Measures such as the 1Malaysia clinics, the 1Malaysia mobile clinics, as well as the scholarships for all 9A+ and deserving students – specifically those who have done well, but come from lower income families – are made possible by such reforms,” it said.

There were three main concerns which led to the subsidy rationalisation: wrong beneficiaries, wastage and abuse.

The Government also said that businesses used twice as much subsidised sugar than households, while owners of luxury cars enjoyed cheap fuel although they could afford unsubsidised prices.

http://thestar.com.my/news/story.asp?file=/2010/7/16/nation/6678655&sec=nation

More motor vehicles sales seen in 2010

PETALING JAYA: The Malaysian Automotive Association (MAA) expects Malaysia’s automotive total industry volume (TIV) to grow 2.4% to 550,000 units this year due to an improved global economic outlook and rising consumer sentiment.

President Datuk Aishah Ahmad said the multiplier effects from the Government’s stimulus packages would also boost the economy and create demand for new vehicles.

“It is going to surpass last year’s sales, definitely,” she told a press conference on the automotive outlook for 2010 yesterday. TIV for 2009 was 536,905 units.

Aishah said the Government’s 5% gross domestic product growth target for 2010 (versus an estimated 3% dip for 2009) was also another factor for the better automotive outlook.

If achieved, the 550,000 TIV forecast for 2010 would be the country’s second highest, surpassing 2008’s TIV of 548,115 units. Malaysia recorded its highest TIV in 2005 with 552,316 units sold.

“We expect 2010 to be a record year,” said Aishah, adding however that an increase in interest rates would have a significant impact on vehicle sales.

“Interest rates will have a bearing on vehicle sales. (If rates increase), sales would be impacted as it will affect the purchaser’s monthly payments. But it also depends on the quantum of increase.” Aishah said the MAA did not expect any increase in interest rates any time soon.

“We forecast interest rates to remain stable. At this point in time, we don’t see any indication that it will go up,” she said.

Aishah also said the recently announced petrol subsidy scheme, which requires owners of cars with bigger engine capacities to pay a higher price for petrol, was likely to have a short-term impact on sales.

“Initially there will be some impact but in the longer term people will get used to the price of fuel. If you can afford a bigger car, you can afford not having the fuel subsidy,” she said.

The Government earlier this month said it was planning a fuel pricing mechanism to ensure that only targeted groups, particularly those with lower income, would receive the fuel subsidy.

“However, we would like the Government to be fair and conduct a thorough study because owners of bigger engine sized cars are already paying higher excise duties because excise duties are based on engine capacity.

“At the same time, they are also paying higher road tax. So the Government is collecting a lot of taxes from these vehicle owners,” she added.

Aishah also said that while 2009’s TIV recorded a 2% dip from 2008, it exceeded the MAA’s initial forecast of 500,000 units. She said demand for vehicles improved in the final quarter of 2009.

“The better-than-expected performance was due to the introduction of the Government’s stimulus packages and its decision to liberalise the 27 sub-sectors, the introduction of the auto-scrapping scheme, improved business confidence, increased consumer spending and aggressive sales promotion activities by MAA members.”

In 2009, a total 486,342 passenger vehicles were sold compared with 497,459 units in 2008 while sales of commercial vehicles dipped to 50,563 units from 50,656 previously.

Taken from: http://biz.thestar.com.my/news/story.asp?file=/2010/1/21/business/5510316&sec=business

Understanding GST

By Deborah Loh

deborahloh@thenutgraph.com

MALAYSIA is among the last in the region to impose goods and services tax (GST) but it still shelved its original implementation in 2007. It was only after spending the last two years in consultation with tax professionals and industry players, that the GST bill was tabled in Parliament on 16 Dec 2009. It will likely be passed next year and come into force in mid-2011 at a rate of 4%.

This time, the sense of urgency is greater: Malaysia cannot continue depending on revenue from its depleting petroleum reserves, and must find sustainable ways of funding development. Called value added tax (VAT) in some countries, the GST is considered an equitable and comprehensive system of taxation that minimises evasion and ensures a broader revenue stream.

That is, if enforcement and implementation is top-notch. Much lies on the government to educate businesses and consumers about the GST, and to have a solid information technology framework to implement it. At the moment, the government has shed little information on its impact other than promising not to burden the poor. How should laypeople view the GST?

Price concerns

The immediate outcry is that GST will "feed the rich and starve the poor". There is the view that GST should be accompanied bylower personal and corporate taxes. There are worries that tax imposed at each stage of the supply or manufacturing chain will result inmultiple taxation on local industries and consumers at the retail end.

PricewaterhouseCoopers Taxation Services Sdn Bhd executive director Sitartha Raja Kumaran Rasiah notes that the government has promised not to burden the poor with GST by "zero-rating" certain essential services. These include water and electricity for households, says Sitartha. The government also intends to exempt education, medical and public transportation services.

"The government should also give some kind of assurance that it will not raise GST beyond the introductory 4% for some time. This may help people accept it better," Sitartha tells The Nut Graph in a phone interview.

People should also realise, he adds, that the GST is going to replace the current sales and services tax of 10% and 5% each. Certain goods and services may end up cheaper with GST, depending on whether those items are currently imposed with sales and services tax.

As for fears of multiple taxation, the input tax credit mechanism will allow industries along the supply or production chain to claim credit or get refunds on whatever GST is imposed."There should be no 'cascading' effect of multiple taxation."

The government should start an extensive education and public awareness drive now to explain how the tax works and its impact on prices, says Sitartha. "They should do a list of the prices of goods and services to compare prices pre- and post-GST."

GST implementation should also be accompanied by stringent price monitoring, and the government is on the right track with plans to adopt anti-profiteering laws, Sitartha adds.

Protecting the poor

When it comes to exempting "basic essentials" from GST, however, the government must be careful not to have an overly long list for political popularity. Taxand Malaysia Sdn Bhd managing director Dr Veerinderjeet Singh cautions that too many exemptions can nullify the purpose of GST as a broad revenue base.

The additional RM1billion in revenue that the government expects to earn annually from GST after it replaces the sales and services tax is "rather low", and could be due to the exemptions it plans to give, he suggests.

Ultimately, the list of GST-exempted goods and services may determine how well the poor are shielded. The full and final list has not been announced, but it should be limited to basic necessities for the population's poorer segment. Luxury items should be taxed in keeping with the GST principle that the higher income group pays more for consuming more.

Veerinderjeet notes that some countries adjust implementation of GST for the lower-income group by applying the tax only to businesses that achieve sales turnovers of a certain threshold and beyond. Or, by raising the taxable income threshold.

Cash off-sets can also be given to the poor in the first year of GST implementation, as done by some countries, he adds.

Government revenue and income tax

Lowering personal and corporate tax in tandem with GST are appealing from a consumer perspective. But doing so as soon as GST is introduced would only drive up the national deficit, which for 2010 is expected to be 5.6% of gross domestic product.

"It's more realistic to wait after the first one or two years to see how it's working out. If collection is smooth and revenue is substantial, then there are grounds to lower income tax," Veerinderjeet says.

Malaysia's situation is also different from Singapore's, where GST was introduced as a new tax and not a replacement tax as it is here.

"They had to lower personal and corporate tax to gain public acceptability, whereas we are replacing the sales and services tax," he adds.

Because GST here will be a replacement tax, it is not a given that government must lower income tax immediately, says Sitartha. At 4%, it is revenue neutral in that it is merely recovering a little more than the same amount of revenue earned through the sales and services tax.

"The government could raise the GST rate in the future, but it is important to do it slowly and gradually," Sitartha notes.

Making it work

GST or VAT may not be a perfect system but has worked well as a revenue base for other countries. Malaysia's problem may lie more in public education, implementation and enforcement.

Sitartha stresses that a clear and thorough explanation of the GST is necessary and urgent. "Australia managed to introduce GST with little inflation because the government had a good communications and education programme, especially for small businesses," he notes.

It is not just explaining the tax itself but also promoting the use of information technology, which is what will drive the taxation system, adds Veerinderjeet.

Electronic filing is key to ensuring speedy GST registration and refunds for those who qualify for input tax credits. This is very crucial for importers and supply-chain producers."

Poor registration and enforcement have hampered revenue collection even now, under the present sales and services tax regime, he notes. Some businesses escape remitting taxes yet still charge consumers.

A massive framework for e-filing and enforcement needs to be set up, and is why the government needs 18 months from the passing of the bill in 2010 before the GST can be enforced.

Milking it?

The government will be releasing more information soon on the GST, Finance Minister II Datuk Ahmad Husni Mohamad Hanadzlah tells The Nut Graph when asked for an interview on the tax.

But Pakatan Rakyat has started an anti-GST task force and is likely to make it an electoral issue. Sentiment is that Malaysia is ranked more corrupt than ever and people are cynical that imposing GST will only be another avenue for corruption.

Introducing taxes of any sort is hardly populist, yet the budget deficit and depleting natural resources leave the federal government with little choice. Still, if it wants to convince the public, it must answer tough questions about GST vis-à-vis other means of raising revenue, the huge profits of concession companies, and combating corruption.

Taken from: http://thenutgraph.com/understanding-gst