Pre-Budget Property, sin sectors likely hit by Budget 2014

Pre-Budget Property, sin sectors likely hit by Budget 2014
Business & Markets 2013
Written by Cynthia Blemin of theedgemalaysia.com
Monday, 23 September 2013 12:47

KUALA LUMPUR (Sept 23): The property and sin sectors are likely to be losers in the much-anticipated Budget 2014 on October 25.

Apart from fiscal reforms and rolling out the goods and services tax (GST), property-cooling measures and affordable housing initiatives are among the strategies to be lay out during the budget, said a research house.

“We expect the sin sectors, namely brewery and tobacco, to be hit by higher excise duties in the upcoming budget,” said CIMB Group Holdings Bhd's chief economist Lee Heng Guie in a note today.

The last hike for tobacco excise duties took place on October 1, 2010 (raised by 3 sen/stick), while that for liquor excise duties were implemented in 2005 (increased by 23.3% to RM7.40/litre), he recalled.

Lee said CIMB expects Budget 2014 to lay out a five-pronged strategy for 2014:

1) Fiscal reforms to roll out the GST to ensure Malaysia spends within its means,

2) Sustaining the private investment momentum – which include pre-announcement of corporate tax cut and incentives for industries,

3) Ensuring a sustainable external balance – a sequencing of public projects, especially those with high import content and low multiplier effects,

4) Property-cooling measures and affordable housing initiatives by raising real property gain tax (RPGT) rates and stamp duties.

5) Strengthening the social safety net – focusing on the needs of low- and middle-income households.

Lee expects the budget to introduce some targeted measures to help rein in asset price inflation as well as stem excessive speculative activities in order to ensure a healthy property market ecosystem.

To pre-empt a credit bust, some fine-tuning of the macro-prudential measures would be desirable.

“We think the government in its upcoming budget may opt for a doubling of the floor price for PROPERTIES [] bought by foreigners to RM1 million from RM500,000 now,” said Lee.

He said that a review of the RPGT may involve a doubling of the existing RPGT rate to 30% (from 15% currently), if the property is disposed within the first two years of purchase, and to 20% (from 10%) if disposed between 3rd and 5th year.

Alternatively, the government may reinstate the old RPGT structure (30% for the first two years, 20% for 3rd year, 15% for 4th year; and 5% for 5th year), he added.

For a foreigner, there may be a 30% RPGT on the disposal of property purchase within five years after the acquisition of property and 10% for 6th year or thereafter.

For the sandwiched middle-income group, Lee expects the budget to widen the tax band, accompanied by a 1% tax-rate reduction for all taxpayers with chargeable incomes of RM50,000-70,000 or less, higher personal tax relief and child relief.

While the government tries to meet differing expectations on the budget, said Lee, the reality is that Malaysia needs to plan its operating and capital spending within its financial capacity.