Malaysia's Budget 2008: Is it a Hype or Light At The End of Tunnel?

For the newly announced Malaysia's Budget 2008, is it a hype or light at the end of tunnel? Well, depends on who you speak to, the answer varies. The politicians, as usual, will sing the tune in lauding Government's effort, making statements like far-sightedness, one of the best, etc. So, we should just discount most if not all of their views since their answers were commonly biased. What about people who are in business? Well, my immediate reaction is that they should be happy given the fact that corporate tax rate will be further reduced by 1% come 2009. (Bear in mind tax rate for 2007 and 2008 have already been reduced by 1% each, that is, 27% and 26% respectively). This is definitely a step forward at the right direction, from corporate Malaysia's selling point perspective, but taking a step back, we know that Malaysia is still far behind more advanced East Asian countries such as Hong Kong and Singapore where their respective corporate tax rates are in the mid teens!

What about ordinary people (or rakyat) like you and me? Well, the common reaction seems to be less happy, given the fact that the highly speculated personal income tax rate has not been reduced (despite cut in corporate tax rate). Bear in mind that for most working class people, it is also common to find people paying at the higher thresholds of the income tax rate, given the way it is currently structured. So with rising cost of living (especially food, petrol, electricity, etc), most people will be disappointed with Government's latest decision to keep rates. However, on the flip side of the coin, i see that there are actually good news for people in general. Firstly, Malaysians now can purchase a new home by withdrawal from the EPF (Employee Provident Fund) on a monthly basis, which makes it now affordable for many to service their monthly mortgage installments. So, this is definitely a major plus point for the property sector in general, particularly the mid and lower segment of the property sector. This could well translate into increased property transactions and also better sales for the developers. In turn, it could also help resolve the property overhang (due to supply over demand) situation for the mid to low-end segment. Secondly, there is actually an indirect reduction in personal income tax, in the form of dividend income received from equity investments to be exempted from tax starting 2008. This is a good way to promote investments in high dividend yielding stocks, particularly those from good quality companies with sound management team.

Not to mention, the Government's effort on giving free education (up to secondary) and incentives for Research and Development initiatives are definitely a plus point, in improving education and creating the climate for Malaysian businesses to move up the value chain in order to become more competitive globally.

However, one of my biggest disappointment from this round is the lack of incentive given to promote REIT (Real Estate Investment Trust). As it stands currently, Malaysia's REIT sector is still trailing far behind countries like Hong Kong and Singapore. This is probably also reflected in its small size compared to these countries. The current tax regime relative to these countries are too high relative to these countries, rendering it less competitive in the region.

Last but not least, it is worthy to note that Malaysia has created tax incentives in attracting foreign talent into Malaysia in developing its Islamic financial markets and the country's goal to make Malaysia a Global Islamic financial hub. Given that Malaysia has lost the initiative to be the regional (conventional) financial hub, it certainly stands a better chance now to become a global Islamic financial hub but much more will need to be done. However, it is somewhat peculiar as some argued that such talents are born and brat in Malaysia, and as a matter of fact, Malaysia is the one losing her own talent to other countries who wish to develop their own Islamic markets on a daily basis! As such, such incentive may not serve the whole objective of retaining Malaysia's own talent.

In a nutshell, the latest Budget may not have served everyone's needs (and I think it will never ever be!) but there are certainly light at the end of tunnel.