Sunday, October 28th, 2018


France will ask auto makers to fund new car trade-in payments

PARIS, Oct 28 — France will ask carmakers tomorrow to help fund an expanded trade-in programme to get older, polluting cars off the road with incentives for new ones, the French finance minister told daily Le Parisien today. The existing…

Foreigners sold net US$624m of Saudi stocks in week to October 25

DUBAI, Oct 28 — Foreigners sold a net 2.34 billion riyals (RM2.6 billion) in the Saudi stock market in the week ending October 25, but the bourse was supported by local institutions which bought 8.06 billion riyals worth of stocks, stock exchange…

MMC-Gamuda unlikely to gain meaning profits from rest of MRT2 underground works: Research house

PETALING JAYA: While positive on the latest development by MMC-Gamuda having “made amends” with the government, AmInvestment Bank said the cost reduction of the MRT2 underground work means MMC-Gamuda will have to carry out the 60% remaining work with an original contract value of RM9.6 billion at RM6 billion, representing a whopping 37.5% cut effectively.

“While the reduction includes the cancellation of two underground stations Bandar Malaysia (North) and Bandar Malaysia (South), we doubt if MMC-Gamuda will be able to turn in any meaningful profits from the remaining work at this price. As such, we are keeping our forecasts that have removed profits from the remaining MRT2 underground work,” the research house said in a report.

It reiterated that corporate Malaysia has increasingly had to learn that apart from maximising profits for their shareholders, it is equally important to maintain a cordial working relationship with the government, and to deliver goods and services to the rakyat in the best possible value-for-money way.

AmInvestment Bank remains cautious on the outlook for the local construction sector as the government cuts back on public infrastructure projects on grounds of fiscal prudence.

While the rollout of public infrastructure projects will resume over the medium term, as infrastructure development remains key to nation building, AmInvestment Bank believes the focus will shift to smaller scale/value-for-money basic infrastructure projects such as road upgrading, bridges, schools, drainage, rural water and electricity supply and smallish sewerage schemes.

“The smaller projects are less economical to large contractors such as Gamuda Bhd, given their high fixed overheads. Not helping either is the uncertainty arising from the potential expropriation of Gamuda's toll roads,” it said, maintaining Gamuda at “hold”.

On Friday, Gamuda's share price closed 6.4% higher at RM2.47, making it one of the most actively traded stocks of the day, while MMC Corp Bhd's share price was 3.6% higher at RM1.16.

MMC-Gamuda received the green light to continue with the Mass Rail Transit Sungai Buloh-Serdang-Putrajaya Line (MRT2) project, after agreeing to a larger cost reduction of RM3.6 billion for the underground works. Prime Minister Tun Mahathir Mohamad stepped in to defuse an escalating war of words between the joint venture company and Tony Pua, who is political secretary for Finance Minister Lim Guan Eng.

The Finance Ministry said MMC-Gamuda agreed to further increase the cost reductions of the underground works from RM2.13 billion to RM3.6 billion, after final negotiations.

“This means that the construction cost (excluding interest during construction, land acquisition costs and other costs) of MRT2 has been successfully reduced by RM8.82 billion or 22.4% from RM39.35 billion to RM30.53 billion,” Lim said in a statement on Friday.

Loosen the purse strings in Budget 2019, govt urged

BUDGET 2019 will be one of many firsts – the first in 17 years where the finance minister is not the prime minister, the first in November and the first under the Pakatan Harapan government.

It will also be one that will require prudence and a degree of finesse, to be mindful of the government's need to cut costs as well as to ensure that the voting public does not feel the burden of a government tightening the purse strings.

Corporate Malaysia looks to be mindful of this need also, as they tell the SunBiz team their essential incentives to maintain attractiveness in doing business in Malaysia and the policies that can help in attaining this.

On the supply side, property developers and builders hope to see initiatives that would reduce the overall cost of doing business.

According to Real Estate and Housing Developers' Association Malaysia (Rehda), compliance cost is the most significant factor affecting a developers' cash flow. Compliance cost accounts for 15% to 20% of the overall cost and any reduction would have a direct impact on total cost, enabling developers to lower housing prices by passing down the savings.

The Master Builders Association Malaysia (MBAM) wants the government to revisit several existing policies that stifle business competitiveness and allow foreign workers to renew their work permits for a longer period at reasonable cost. It urged the government to continue reducing the cost of doing business and to refrain from introducing policies that will increase it.

On the demand side, house buyers want the government to review the stamp duty imposed on owners or buyers of multiple properties. The National House Buyers Association (HBA) recommends that the stamp duty be increased to 5% of the property's value for the third property owned, 7.5% for the fourth property and 10% for the fifth property.

Meanwhile, real estate agents want a system to eradicate “illegal brokers” to be established by the police as provided for in Act 242 and as echoed by the Housing and Local Government Ministry.

> Rehda
• Reduction of compliance costs;
• Review of bumiputra quota policy – transparent and automatic release mechanism; and
• Government to take on bigger role in providing social/public housing.

• Human resources – shortage of skilled labour, longer work permits, foreign worker levy;
• Continuity of projects; and
• Taxes – allow a two-year grace period for contractors to settle their final account and the full GST fees to ease the cash-flow burden.

• Entry cost – increase stamp duty for owners/buyers of multiple properties;
• Exit cost – increase real property gains tax (RPGT) for owners/buyers of multiple properties; and
• Implement build-then-sell 10:90 to avoid abandoned projects

> Malaysian Institute of Estate Agents (MIEA)
• Eradicate “illegal brokers”;
• Boost the sector by providing financing schemes for first-time house buyers and lower the threshold on foreign buyers from RM2 million to RM1 million; and
• Set up fund for skill development and training for real estate agents and negotiators, RM3 million grant for innovation and technology to enhance the profession.

In asking for tax incentives Federation of Malaysian Manufacturers president Datuk Soh Thian Lai said, while it appears that there will be an impact on tax collections, the proposals would result in medium and long-term business expansion, which would in turn generate economic growth income and better job opportunities.

> Grant automatic relief on:
i. All inputs for the manufacture of non-taxable goods; and
ii. Any taxable services rendered to manufacturers

• All direct tax incentives must be with minimum red tape to support not only new but more importantly, existing investors in their efforts to expand, upgrade and diversify.

• There should be greater certainty and transparency in direct tax benefits, particularly under the self-assessment tax system.
• Reinvestment Allowance (RA) Tax – The RA was extended in Budget 2016 for three years and will expire in 2019. Remove time bar and extend reinvestment period beyond three years as companies reinvest continuously at different times.

• Capital Allowance on Automation Expenditure Tax – Remove time bar (from 2017-2020) for capital allowance or extend for 15 years. Increase qualifying expenditure to RM10 million.

• Automatic Research & Development (R&D) Double Deduction Incentives – Remove the RM50,000 threshold and time bar since the current double deduction incentive does not have a cap or timeline.

• Maintain automatic approval to reduce a company's exposure to risk of Intellectual Property theft and administrative burden to the government and companies.

• Double Tax Deduction for Expenses Incurred in LEAN Management System – doubling tax deductions would help to lower costs and help companies preserve their HRDF funds.

• Tax incentives like pioneer status, tax-free income for the first five years and preferential tax rates at 50% of the prevailing rate for the next five years for implementation of Industry 4.0.

• Tax deduction for companies implementing waste minimisation, recycling, water conservation activities that would contribute to the sustainable development agenda.

• Tax credit on cost of new machinery and equipment contributed by companies to local technical institutions and skills development centre

> Policy
• Form a special economic and investment committee to review constraints and strategies to boost local and foreign investment.

• A national taskforce to ensure comprehensive and practical policy implementation; consider holistic impact on business sustainability; and mandate on national policy on development and implementation of regulations, which includes regulatory impact analysis and meaningful consultation.

• Ensure business friendly investment climate and policies by reducing the unnecessary regulatory burden to address the threat of premature deindustrialisation. A more friendly regulatory environment with simple, more transparent, reliable, easy to comply, consistent and fair regulations.

> Procurement /Asset monetisation
• Procurement system should be revamped to save billions, avoid corruption and the presence of “fat cat” middlemen.

• In the case of land, including state land, which has been alienated/sold “cheaply” over the years. A proper transparent system supported by a robust commercial valuation service is essential. Such assets should be put on the reserved list to be opened for tender

> Foreign workers
• The RM10,000 levy payment for workers who had stayed more than 10 years, should be reduced to RM3,000.

• Government should consider granting them permanent resident status for foreign workers with skills and experience.

> Minimum wage
• To address the minimum wage level issue for Malaysian workers the government can implement a monthly citizen “cost of living subsidy” of RM200-500 per month. Since it is a subsidy it will not affect overtime work and compulsory EPF, Socso and HRDF contributions.

Retail sales remain weak after September 2018 despite minimum increases in prices of retail goods and services, as local consumers hold back on spending. Retail consulting firm Retail Group Malaysia, and mall operator Sunway Malls & Theme Parks and Malaysia Retail Chain Association believe that the following measures would go a long way.

Managing cost of doing business
On conducting business, retailers want to be able to manage costs effectively, citing electricity rebates, friendly foreign workers policies and incentives to adopt technology and innovation for new digital retail as enablers for the challenging retail landscape.

Electricity constitutes the single largest cost component in operating a mall, where electricity can go up as high as 40% of the overall cost depending on mall size. The industry wish list is to reinstate electricity rebates to be reviewed on a six-month basis.

While the mall industry generally is still highly dependent on foreign workforce, as automation is not possible in areas of services, security, and food and beverage, some retailers are open to a gradually reducing dependence on them over a period of three for five years, with incentives to train, reskill and upskill and hire Malaysians.

Tourism numbers
Retailers also called for a boost in tourism numbers, especially high-spending countries like China, by implementing visa-free travel to drive tourist arrivals and spending in Malaysia.

Stimulate economy
On the economic front, retailers want the government to improve consumer confidence, stimulate broad-based economic activities, and have a tax structure that encourages consumer consumption and other expansionary policies.

Small and medium-sized enterprises (SMEs) form 98.5% of the total establishments in the country and according to the mid-term review of the 11th Malaysia Plan, SMEs are expected to contribute up to 41% of the country's GDP by 2020. Besides asking for lower taxes and tax incentives as well as support in adopting Industry 4.0, SMEs are seeking support in terms of the following.

> More projects
Industry insiders hope the new government will set a certain ratio or target for all procurement by government departments, agencies and government-linked companies to be from SME vendors in order to encourage greater market access for SMEs.
The sector also hopes the administration will strengthen domestic demand and market by enforcing “buy made in Malaysia” in government procurement activities including government development/mega projects to reinforce support and confidence in locally manufactured products

> Boost SME lending
The industry also hopes the government will provide tax exemptions for investors in peer-to-peer financing platforms and equity crowdfunding to encourage greater flexibility of financing for SMEs, and provide market and product development grant to enhance export capacity

Open rift between India’s central bank and the government

MUMBAI: In a sign of a mounting policy struggle between India's central bank and the government of Prime Minister Narendra Modi, a top bank official warned on Friday that undermining a central bank's independence could be “potentially catastrophic”.

The comments by Reserve Bank of India (RBI) deputy governor Viral Acharya showed that the central bank is pushing back hard against government pressure to relax its policies and reduce its powers ahead of a general election due by next May, and as Indian financial markets have been dropping in recent weeks.

In a speech to top industrialists, he cited the Argentine government's meddling in its central bank's affairs in 2010 as an example of what can go wrong. That led to an investor revolt and a surge in bond yields, badly hurting the South American nation's economy.

“Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution,” Acharya said.

He had three of his fellow deputy governors in the audience and also thanked RBI Governor Urjit Patel for his “suggestion to explore this theme for a speech”, in a show of unity from an institution typically known for its restraint.

Government officials have recently called for the RBI to relax its lending restrictions on some banks, and New Delhi has also been trying to trim the RBI's regulatory powers by setting up a new regulator for the country's payments system.

Acharya said more needed to be done to ensure effective independence for the central bank in its regulatory and supervisory powers.

“The risks of undermining the central bank's independence are potentially catastrophic,” said Acharya, adding that rash moves could trigger a “crisis of confidence in capital markets
that are tapped by governments and others in the economy.”

Finance Ministry spokesman D.S. Malik said on Saturday that he had read Acharya's statement but declined to comment on it without consulting senior officials.

Government officials have also called for the central bank to ease its lending restrictions on some banks that have a low capital base.

The RBI has identified 11 such state-run banks that are barred from lending unless they shore up their capital base after a massive rise in bad debts on their balance sheets.

Last week, the RBI also published an unprecedented note expressing its opposition to the government's moves to establish a separate regulator for the payments system, which is currently handled by the RBI as part of its functions related to banking regulations.

Acharya reiterated the need for a central bank to fortify its balance sheet against external shocks in the face of government demands to transfer surplus reserves to government coffers.
Modi is under pressure as higher international oil prices have hurt the rupee currency and driven Indian fuel prices to record highs, leading to protests.

Stock markets, which scaled new highs in August, have since given up all of their gains for the year amid fears of a liquidity crisis among non-banking financial companies, in the aftermath of defaults by a major infrastructure financing company.

Modi's government has also faced corruption allegations from the opposition Congress party over a military jet deal with France, and last week it faced protests over its move to suspend
the chief of India's top crime-fighting bureau.

Acharya, who is in charge of departments including monetary policy and exchange rate markets, also defended the central bank on its effectiveness following a pile-up of bad debt worth US$150 billion (RM720 billion) in banks. He said that the bank was “statutorily limited” in taking a full scope of actions against state-run banks.

Referring to NBFCs, Acharya said that systemic risks can build in shadow banks when important parts of financial intermediation are kept outside the purview of the central bank. He warned this could come at “substantive costs to future generations in the form of unchecked financial fragility”.

While the RBI is not statutorily independent, as the governor is appointed by the government, it enjoys broad autonomy in setting rates.

“There should be a balance between autonomy and accountability,” said former RBI deputy governor Acharya acknowledged the government's efforts to bring in legislative changes that allowed setting up a monetary policy committee in 2016 and distancing itself from monetary policy decision-making. Those “who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans”, he added. – Reuters

Execs of palm firms among seven arrested in Indonesian bribery probe

JAKARTA: Indonesia's anti-graft agency has arrested seven people, including a senior executive of palm firm Sinar Mas Agro Resources and Technology, in connection with a bribery case, an official at the agency said today.

The Corruption Eradication Commission, known as KPK, named vice-president director of Sinar Mas Agro, Edy Saputra Suradja, chief executive of PT Binasawit Abadi Pratama, Willy Agung
Adipradhana, and some members of Central Kalimantan parliament as suspects in the case, KPK Deputy chief Saut Situmorang told Reuters.

Both Sinar Mas Agro and Binasawit are subsidiaries of Singapore-listed palm oil giant Golden Agri-Resources Ltd.

The people are accused of bribing parliamentarians to avoid an investigation into Binasawit's plantation permits and palm processing waste near Sembuluh lake in the Borneo island, Situmorang said.

Golden Agri, in a statement following the arrest, said: “The company will cooperate fully with the ongoing investigation and hopes that the issues can be resolved as quickly as possible”.

It called the case “gravely concerning and regrettable” and stated that its Indonesian operations and subsidiaries must be managed in accordance to the law and regulations in the country.
A statement on behalf of both Sinar Mas Agro and Binasawit said all parties are fully cooperating with the investigation.

Reuters could not immediately reach Suradja, Adipradhana or their lawyers for comment.
Indonesia is the world's top producer of palm oil. It has faced pressures from international buyers and environmentalists to make the industry more sustainable.

Central Kalimantan parliament had received complaints from residents that palm waste, allegedly from Binasawit's plantation, had polluted Sembuluh lake, Situmorang said.

During a site visit to investigate the matter, parliament members found problems with Binasawit's permit for use of forest areas, he said. He did not elaborate.

In the operation, KPK confiscated 240 million rupiah (RM65,760) authorities suspect had been intended as bribe money, Situmorang said.

Sabah has huge potential to become aerospace hub: Leiking

KOTA KINABALU: Sabah has a huge potential to become an aerospace hub and a leading centre for the industry, especially in maintenance, repair and overhaul (MRO), as well as in manufacturing, said International Trade and Industry Minister Datuk Darell Leiking.

He said rising tourist arrivals in Sabah could pave the way for more flights into the state, hence the requirement for more aerospace services providers to cater to the needs of airlines for MRO facilities and capabilities, as well as human capital skills.

More Sabahans are needed to venture into the aerospace industry as it could create more opportunities in the industry and attract new investments into the state, he added.

Leiking said Sabahans made up only 10 out of 230 aerospace services providers registered in the country.
“It is (the figure) very small compared to the opportunity available in the aerospace industry. We need more Sabahans to venture into the aerospace industry,” he told reporters after officiating the Malaysia Aerospace Industry Seminar, here today.

Themed 'Building the Future of the Aerospace Ecosystem in Malaysia', the one-day seminar was organised by the Ministry of International Trade and Industry and the National Aerospace Industry Coordinating Office.

The seminar was aimed a promoting initiatives to further enhance and highlight opportunities in the Malaysian aerospace ecosystem to attract local players to venture into the industry.

Darell said, 48% of the Malaysian aerospace industry's revenue of RM13.5 billion last year was contributed by the manufacturing sector, while the MRO segment made up 46%.

He said Malaysia has a huge potential in the global aerospace business, with its products being exported throughout the world. – Bernama

Euro zone not prepared enough to face new crisis, says French finance minister

PARIS, Oct 28 — There is no risk of contagion from Italy’s budget crisis in the European Union but the euro zone is not prepared enough to face a new economic crisis, French Finance Minister Bruno Le Maire told daily Le Parisien today. The…

UK needs Brexit deal to end austerity, says Hammond

LONDON, Oct 28 — British finance minister Philip Hammond said an end to his spending squeeze depended on the country getting a Brexit deal and he warned he would have to drop plans to boost public services without one. Hammond, who is due to…