Jumaat, 18 Oktober 2013

The Star Online: Business

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The Star Online: Business

icapital not keen on Bursa


KUALA LUMPUR: Closed-end fund icapital.biz Bhd is less enthusiastic about investing in the local stock market at present as it thinks most stocks are currently trading at expensive valuations.

"Shares on Bursa Malaysia are not cheap… many stocks are overvalued at present," icapital.biz managing director Tan Teng Boo said.

Tan revealed that the fund was currently holding around RM200mil, or about 50% of its net asset value, in cash, waiting for the right moment to enter the market to invest.

He added that it had been maintaining a high cash position for the last nine to 10 months, not only because the market was looking expensive, but also because of the surrounding domestic political and international economic uncertainties.

"We only look at undervalued stocks as we believe in having a sufficient 'margin of safety' for our investments," Tan explained during a press briefing in conjunction with its upcoming 2013 Investor Day.

Themed "Great Beginnings," the event will be held on Oct 26 at Kuala Lumpur Convention Centre from 9am to 6pm. It will feature special sessions with Youth and Sports Minister Khairy Jamaluddin, Lembah Pantai Member of Parliament Nurul Izzah Anwar, Asian Development Bank economist Niny Khor, and corporate captains Tan Sri Lodin Wok Kamaruddin, Datuk Seri Ajib Anuar and Aminul Rashid Mohd Zamzam, among others. There will also be games with exciting prizes.

Tan said he expected the conference to attract 10,000 participants.

When asked what he thought would be a reasonable level for icapital.biz to enter the local stock market, Tan said it would be when the valuation hovered around 11 to 12 times price-earnings (PE), compared with the present level of 16.5 to 17 times PE.

"The present valuation is not cheap based on our economic growth that has slowed and corporate earnings growth that is not strong," Tan explained.

He pointed out that his team was now sceptical about Asean capital markets in general. Besides the Malaysian stock market, Tan said stocks on the Philippines' market were also overpriced at their present levels, while the Jakarta stock market was plagued by Indonesia's fundamental economic problems and Thailand's stocks looked less attractive after the country's economy slipped into a recession.

Meanwhile, Tan said he was looking to double the icapital.biz's staff size from the present 70 people to facilitate its expansion plan. He revealed that his aim was to make icapital.biz, a truly global investment house within the next 10 years.

Up Close & Personal with Paul Moung


WHEN he was a young boy, Paul Moung stayed at a monastery in his native country of Myanmar (formerly Burma).

Although he did this just twice in his life – both of them briefly, the experience has remained with him a lifetime. In fact, Moung believes that many of the values he inculcates in his daily work schedule stems from his time at the monastery.

"Watching the monks go through their daily rituals, it was all about calmness, commitment and self-discipline," says the managing director of IBM Malaysia.

Moung says he spent about a week each time at the monastery – the first was with his two brothers when he was six years old; the second with his cousins when he was nine.

"There were certain rituals that we had to follow, such as fasting, wearing sacred robes, chanting prayers and having our heads shaved."

Moung recalls he had to wear two types of robes at the monastery – one during prayers and another almost most of the time.

"There was one sacred robe we had to wear all the time, and no matter what, we were not allowed to drop it below our knees, even in the bathroom!

That required a lot of discipline, he says. But playing the role of a monk was more than just about aesthetics – it's a way of life, albeit a tough one, especially for a young boy.

"We had to go around begging with bowls and I had to fast from noon until the next morning. We could only have sips of water, so the temptation to eat was strong and it was difficult."

This trained Moung to be self-disciplined.

"Discipline is easier when it's imposed on you. But self-discipline is not easy. Like dropping the robe below your knees – although no one can see you when you're in the bathroom, you take it upon yourself to ensure that you abide by the rules."

Born and raised during the early part of his life in Burma, Moung is also no stranger to hardship. Following the military coup led by General Ne Win in the early 1960s, Moung's father, who was a police commissioner, was a political prisoner for four years.

Moung was only eight when it happened.

"Many people were made political prisoners at the time. What's worse was that we were not allowed to see him. My brothers and I would joke that even a convicted murderer was allowed to receive visitors.

"The only correspondence we had with him was through letters. We could send him things but, of course, they would have to be screened."

Moung and his family left Burma and moved to Hong Kong in 1971. The family then moved to Tokyo, where Moung received the bulk of his formal education.

IBM man

He would later graduate with a Master of Business Administration from Sophia University, Tokyo. Moung recalls during his university years in Japan when many of his professors would refer to IBM in their lectures and course practices.

"IBM would always be mentioned as the company was highly regarded and admired. I think that had a huge influence on me and why I wanted to work there."

Moung joined IBM in Hong Kong in 1979. Since then, he has held various management jobs in sales and marketing in Hong Kong, China, India and Singapore. Moung was instrumental in introducing IBM's RISC Unix platform in China in 1990, which catapulted the company to become the undisputed market leader in this space in China.

In 1994, he was appointed general manager in Hong Kong, the first Asian to be appointed to this role in the history of IBM in Hong Kong. During his time, Moung transformed and grew IBM's market share in Hong Kong as the computer giant struggled to revive its business worldwide in the wake of a major crisis.

His success led to him being tasked with building IBM software business in South Asia for the newly created IBM Software Group. During this period, Moung was also responsible for the integration of the Lotus software company into IBM in this part of the world.

Subsequently, he was appointed general manager, systems, software, and cross industry solutions for South Asia. Here, Moung was instrumental in leading IBM's re-entry into the India market after a 30-year absence. IBM had exited the sub-continent in 1978.

In 1999, Moung was assigned to Tokyo as vice-president, storage systems group, Asia Pacific, and went on to lead the revival in the storage market for IBM in Asia Pacific. He then returned to Singapore as vice-president, systems and technology group/business partners for South Asia.

In 2008, he was assigned to Tokyo as vice-president, systems and technology group, and appointed a member of the board of directors at IBM Japan.

In April of this year, he was appointed to his current position as managing director of IBM Malaysia.

Moung admits that working in various countries presented different challenges.

"Based on first-hand experience, every market is unique and different. In mature markets, attrition is not much of a problem. But in growth markets, it's harder to retain talents. So you have to manage things differently."

Moung no doubt is using his past experience to oversee his Malaysian operations.

"Malaysia is like all other markets. There are companies here that have the aspiration to go regional or global, while some want to focus on the domestic market.

"When I divide Malaysia into different groups, it's similar to many countries. So in reality, the business is not much different."

As for skills and talents management, Moung says IBM tries to ensure its people are retained and remain competitive.

"As companies out there strive to go to the next level, upgrading of skills is required. Every customer I've spoken to aspires to do that and we also need to improve ourselves.

"We have a commitment to serve global clients using Malaysian talents."

Having a wide presence, a big challenge for IBM is to be able to tweak and offer its services to specific target groups, says Moung.

"A question that often comes up is how do we bring all this to our customers in Malaysia. We have large, medium and small customers. So how do we cater to their individual requirements? We need to provide customised solutions."

"We don't want SMEs to feel like IBM is unapproachable. So we're always finding ways to make IBM relevant to the broad market rather than just the larger companies out there."

The well-read athlete

Moung is married with two children. His hobbies include golf, tennis, listening to music and reading. When he was young, he aspired to be an athlete.

"My initial ambition was to become an athlete, so that I could win trophies and medals. I was in the swimming, tennis, track and field, badminton, football and rugby teams."

"My monastery experience, and involvement in sports, has helped me to stay focused and think straight."

An avid reader, Moung says he loves reading biographies of famous people.

"I've been reading biographies for the last 30 years, ranging from musicians, entrepreneurs, business leaders, self-made billionaires, politicians to even spiritual leaders."

Moung lists Richard Branson, Howard Hughes and Gandhi among his favourites.

"When you read about these people, it tells you something that relaxes you and helps you to come to terms with the global, social problems that might worry you."

Moung says it is a dream of his to be able to write his own book some day.

"I want to write a biography of my own. Of course, I don't know if people will actually read it," he says with a chuckle.

Gearing GST towards public acceptance


GOODS and Service Tax (GST) is tax on what is spent and not on what is earned. Earlier on March 30, 2010, Prime Minister Datuk Seri Najib Tun Razak unveiled the New Economy Model (NEM) and it recognises that a wider tax base is an important part of reforms, where the introduction of GST is a key component. It was reported that a more diversified tax base is needed to compensate for an expected future reduction in the share of revenue from oil and gas.

Najib will make his Budget 2014 speech on Oct 25 and the long overdue GST is likely to be a major part of a package of tax reforms. Malaysia's household debt to GDP was 83% in mid-2013 compared with 70% in 2009. Policymakers and tax analysts too consider its introduction inevitable, particularly given the paradigm shift in tax policies worldwide in favour of indirect taxes. More than 160 countries worldwide have already introduced GST (known as VAT in European countries) and more than 90% of countries have some form of GST exposure.

Goods and Services Tax Bill

On Dec 16, 2009, a Goods and Services Tax Bill was tabled in Parliament but it was subsequently withdrawn for reassessment. The GST Bill sought to impose a tax on goods and services but essential items would either be zero-rated or exempted. To protect small businesses, the Finance Ministry has recommended a threshold of RM500,000 in annual turnover. This would imply businesses below that threshold need not register nor do they need to collect GST. Once an announcement is made to introduce GST, actual implementation would be subject to a 12- to 15-month long preparation period for businesses to familiarise themselves with the new accounting procedures.

Weaknesses of existing system

The existing sales tax, introduced in 1972, is a single stage tax on the manufacturing of goods and the importation of manufactured goods. Exemption from the tax is dependent on the turnover (RM100,000) of licensed manufacturers and the type of manufacturing activity. Despite a complicated procedure for claiming relief of the tax in respect of business-to-business transactions, the tax has a cascading effect, which means that, to a certain extent, the tax incurred by manufacturers is taxed again at subsequent stages of the manufacturing process. The service tax was introduced in 1975 and it is also found to have an arbitrary effect on consumer prices.

Service tax only applies to a narrow set of defined activities classified as "taxable services" whose value has exceeded (exceptions apply) a certain annual threshold. Liability for service tax is therefore based on a combination of business characteristics and the types of services. The turnover threshold does not apply to numerous professional services. The service tax does not only have a cascading effect, it also accumulates with sales tax.

Impact on consumer prices

The introduction of GST will have an impact on consumer prices and, therefore, on real income. The extent of the tax burden on various categories of expenditure will depend on the GST rate, threshold limit as well as on the scope of the exemptions or application of zero rating.

In 2012, sales tax yielded RM9.2bil while service tax yielded RM6.2bil. Both these taxes account for 7.7% of Federal Government taxes. In the same year, indirect taxes (RM33.1bil) merely accounted for about 15.8% of federal taxes while direct taxes accounted for RM124.8bil or 59.7% and non-tax revenue was RM51.3bil or 24.5%.

An increase in revenue collection from the switch to GST from existing sales tax and service tax will come from enforcing tax collection across a broader chain of production and distribution of goods and services.

Attraction of GST

The single most attraction of GST is it being seen as a neutral tax that would provide substantial revenue to the Government without lowering the effectiveness or efficiency of the market system in allocating capital, land and labour. It is a means of increasing the government tax base by reaching out to a broader group of people, namely consumers. The GST system has a self-policing mechanism due to in-built cross-checking features which would improve tax compliance. Taxpayers (i.e. registered persons) are also compelled to maintain orderly accounts and hence there is less scope for tax evasion.

GST in Singapore

In 1994, the Singapore government introduced GST at a low rate of 3% and with a high threshold limit of S$1mil. Hence, only large business enterprises were needed to register to collect GST. However, very minimal goods and services were either zero-rated or exempted, hence lowering tax leakages and improving efficiency in the collection of revenue. The GST rates were gradually increased over the years to 7% from July 2007 onwards.

During this period, corporate tax rate in Singapore was lowered from 30% in 1993 to 27% in 1994; and further lowered over the years to 22% in 2003; 20% in 2005; 18% in 2008 and 17% from 2010. To help companies cope with rising business costs, the Finance Minister announced in Budget 2013 that, for the years of assessment 2013, 2014 and 2015, companies will receive a 30% corporate tax rebate that is subject to a cap of S$30,000 per year.

Salient features of GST

If GST is implemented, the tax would be charged on any taxable supply of goods or services made by a taxable person; and on the importation of goods or services. The word "business" includes any trade, commerce, profession, vocation or any other similar activity.

The generic term GST covers a set of broad-based ad valorem taxes that share two common features, namely:

(i) The tax is collected at every stage of the production process, and

(ii) The amount collected at each stage is based on the value added at that stage.

The GST is supposedly a regressive tax but there are ways to mitigate the tax burden faced by middle and lower income groups as well as small businesses. It is likely that the proposed GST charged on a broad range of taxable supplies is at the standard tax rate of 5%, hence revenue from GST would only increase modestly. Essential supplies of over 40 items would be either zero-rated or exempted and such a move would be favourable to the broader community, particularly the lower income groups.

Zero-rated supplies

Zero-rated goods and services are goods that have no tax charged on consumers. This means that the final consumer will literally pay GST at a rate of zero per cent. When goods or services are zero-rated, the firm can still claim credits for all inputs but is required to charge output tax only on non-zero rated supplies, hence it could receive a net refund.

Likely zero-rated supplies are exports of goods, international services, agriculture produce, essential foodstuff (example: rice, sugar, table salt, plain flour and cooking oil), livestock supplies and fish. It is likely that a pre-determined units of electricity to domestic users and limited cubic metres of water to domestic users would be zero-rated.

Exempted supplies

Exempted supplies are those items that "miss out" on one or more stages of the GST assessment process. In Australia, exempted supply are referred to as "input taxed supply". Producers of exempted supplies do not receive a credit for the GST incorporated in their input costs and are not charged tax on their exempted supplies. The effect is that the commodity is taxed at a lower effective rate. For example, if a firm purchases inputs costing A$110, GST-inclusive (at say 10%) and makes exempted supplies of RM160, the only tax on final sales is the (non-credited) A$10 included in its purchases, so the effective rate is (A$10/A$160) = 1/16 of the gross price (7%).

Exemptions, however, introduce economic inefficiencies and reduce the revenue base, but the effects will not be as severe as zero-rating because the exempted commodities still bear some GST. The effective rate is proportional to the share of value-added at the relevant stage in the total value of the commodity.

Critical items likely to be treated as exempted supplies are financial services, private health and education, domestic transportation of passengers, sales and lease of residential property, and land for public use. The GST credit offset mechanism cannot be used to tax financial services on a basis consistent to other goods and services. This is due to the absence of explicit fees for financial services; the value of input supplied by financial institutions is a spread that may be only a few basis points in the total charge to a customer.

Distributional effect of GST

The author investigated the distributive effects of a comprehensive GST on prices of a broad group of commodities and services in Malaysia. Base data was compiled from the Household Expenditure Survey (HES), which collates information on levels and trends of consumption expenditure by households on a comprehensive range of goods and services. The 11-monthly expenditure classes (categories) vary from below RM500 (Class 1) to above RM5,000 (Class 11). A simulation model was developed to determine the effects of the GST on households. Four GST rates, namely 3, 5, 7 and 10 percentile points were considered in the simulation exercise.

The findings of this study suggest that the GST is not necessarily a regressive tax and it is even found to be fairly progressive.

The distributional effect of GST in Malaysia should not be examined in isolation but viewed within the context of a fiscal system comprising tax and government expenditure programmes. A tax is seen as regressive when it would impose a proportionately higher tax burden on lower income earners than higher income earners. The mild regressive aspects of the indirect tax could be overcome with financial assistance programmes, imposing graduated excise duties on non-essentials and prudent use of a GST coupon system to support the lower income groups.

Dollar for dollar reimbursement

It is generally felt that GST implementation is more urgent now due to rising GDP-debt ratio, low earnings from the petroleum, gas and commodity sectors as well as the need to narrow the budget deficit. In a GST environment, greater efforts are needed to boost productivity and promote innovation. In this regard, a dollar for dollar reimbursement should be given for GST-related expenditure on R&D activities, cost of purchase of new accounting software and expenses related to re-training staff. A double deduction should also be given under the Income Tax Act 1967 for all GST related book-keeping expenses which the Malaysian Inland Revenue Board would find useful for tax audit verification.

The GST when implemented in Malaysia can be seen as a reformatory move to further promote efficiency of the tax administration.

> Jeyapalan Kasipillai is a professor and deputy head of school of business, Monash University Malaysia. He is also an adjunct senior research fellow, Monash University Melbourne.

Kredit: www.thestar.com.my

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