Dispatch (Asia edition)
| by Peta Tomlinson, Nazatul Izma Abdullah, Sonia Kolesnikov-Jessop 01 Sep 2006 Topic: News |
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Foreign companies would be discouraged from coming to Hong Kong if a Goods and Services Tax (GST) is imposed, a real estate executive says. Daniel Wong Hon-shing, sales director of Midland Realty, pointed to Government statistics showing that a low and simple tax regime was one of the main reasons why foreign companies set up in the HKSAR. A GST would be “a disaster” and cause many investors to pull out of Hong Kong, he said. Wong was speaking as the Government moved one step closer towards making a decision on tax reform, launching a nine-month public consultation process. Financial Secretary, Henry Tang, has stated that the problems arising from Hong Kong’s narrow tax base were “abundantly clear”. He says the major streams of recurrent government revenue – salaries tax and profits tax – are highly sensitive to economic fluctuations, and that land premiums and investment income, two other very important sources of revenue, are volatile. Tang believes Hong Kong needs a revenue stream that is less sensitive to the ups and downs of economic cycles, and that widespread overseas experience has demonstrated a GST could achieve this purpose. With Hong Kong currently enjoying solid economic growth, falling unemployment and relatively tame inflation, he said now (in July) was a good time to start formal discussions. “As the economy moves in a cyclical pattern, Hong Kong should grab this opportunity to think about introducing a new tax to enlarge the source of government revenue and stabilise public finances,” Tang said. He added that the consultation paper would propose exemptions to reduce the effect of any new tax, provide tax relief for taxpayers, and some relief measures for low-income earners. When devising a GST, Tang said the Government will look at overseas’ tax regimes, adding that similar taxes have been in place for years in developed countries such as Singapore, Australia, Sweden and many European countries. Opinion is divided about the merits of a GST. Midland Realty has weighed in with its opposition to the proposal, which could see a 5% GST impost on the non-residential property sector. Midland claims that commercial and industrial property values would drop by 25% as a result, and transactions slump by 30%. They also say the flow-on effect would affect Hong Kong’s currently robust business environment. “We have talked to some very active foreign investors, and they all have the same view – that they will pull out of Hong Kong (if a GST is imposed),” Wong said. unsecured credit rules relaxed? Singapore has recommended that unsecured credit regulations be relaxed, according to the Joint Public Consultation Paper on Unsecured Credit Rules released by the Monetary Authority of Singapore (MAS) and the Ministry of Law. Key proposals include lowering the minimum income threshold for unsecured credit facilities to S$20,000 from S$30,000. Other proposals include setting the maximum aggregate credit limit of all unsecured personal credit facilities and credit cards granted by a financial institution at four times the monthly income for individuals with at least S$30,000 in annual income. However, individuals with annual income of at least S$20,000 and below S$30,000 can access a maximum aggregate credit limit of twice their monthly income. Lenders have welcomed the prospects of an enlarged pool of customers, but critics are uneasy about a possible rise in bad debts given easy credit. According to Channel NewsAsia reports, about 460,000 people will immediately qualify for unsecured loans, translating into a potential 20% rise in customers who will not need collateral. Based on a minimum S$20,000 annual income at twice the monthly income for qualified borrowers, banks could easily be giving out more than S$$1.5bn in unsecured loans. Of course, to safeguard the banking industry, capital adequacy requirements could rise as well to mitigate the risks of debts going bad. MAS also intends to apply the proposed unsecured credit rules to moneylenders with appropriate modifications. For instance, income checks are mandatory and applicants must have an annual income of at least S$20,000 for unsecured loans from moneylenders exceeding S$3,000. For unsecured loans of S$3,000 and below, mandatory income checks are not required as there is no minimum income requirement. MAS insists that the proposals do not signal a relaxation in the Government’s policy stance towards unsecured credit. Instead, said the regulator, they are intended to update MAS’ existing unsecured credit rules given the developments in the financial industry, especially in the area of risk management, and to introduce appropriate unsecured credit rules into the moneylenders’ regime. Is painful austerity the hallmark of Malaysia’s 2006? Hard on the heels of power and petrol conservation measures, driven somewhat by price increases, comes the National Water Conservation Campaign to be carried out over two years. The campaign aims to cut domestic water consumption by 10%. Energy, Water and Communications Minister, Datuk Seri Dr Lim Keng Yaik, told the Bernama news agency that people have got to stop using water “as if there is no tomorrow”. Malaysians are the most lavish consumers, with an average person using 300 litres per day compared with the basic recommendation of just 50 litres per person per day. Wanton wastage occurs simply because water is cheap and abundant. Bernama estimates that an average urban household pays only about RM30 per month for water. Malaysia also suffers alarming rates of water loss, resulting in 38% non-revenue water, thanks to burst pipes and leakages, pilferage and meter under-registration. Leaks are the main culprit, and the Ninth Malaysia Plan has allocated RM1.4bn to replace old pipes throughout the country. This is an expensive proposition because the entire water-supply distribution system in Malaysia comprises more than 91,247km of water pipes, of which about 50% or 45,746 km are asbestos cement pipes, and most of which are more than 30-years-old, notes Rating Agency Malaysia. Are water tariff hikes in the offing? Dr Lim said raising the tariff was not the Government’s first choice, but it will be an option if recalcitrant consumers persist in wasting water. On a state-by-state basis, there may be a crisis pending. Apparently, at the current rate of water consumption, the supply of water in Selangor, Malaysia’s most industrialised state, will not be sufficient, forcing it to import water from other water-rich states. But a 10% drop in consumption will be a sufficient panacea for Selangor’s water woes. After 23 years of developing and regulating an Islamic financial system hailed as a progressive model, Malaysia recently announced key measures to enhance inter-linkages in the global Islamic financial markets and expand business in its efforts to entrench itself as a global hub for Islamic finance. At a recent Malaysian Islamic finance forum, Central Bank Governor Tan Sri Dr Zeti Akhtar Aziz announced the launch of the Malaysia International Islamic Financial Centre (MIFC), which will pave the way for the offering of Islamic financial products and services in international currencies from anywhere in Malaysia. The MIFC initiatives aim to provide operational flexibility, cost-effectiveness and a conducive environment for Islamic finance business in international currencies, noted Deputy Bank Governor Dato’ Mohd Razif bin Abd Kadir. At the same time, the liberating measures are clearly intended to augment existing business and to draw new investment. Notably, existing Islamic banks and takaful or Islamic insurance operators can now set up International Currency Business Units within their institutions to carry out foreign currency transactions. New conditional licences will also be issued for the setting up of International Islamic Banks and International Takaful Operators, under the Islamic Banking Act and the Takaful Act respectively, to qualified foreign and Malaysian financial institutions who want to offer international currency products and services. For greater flexibility, offshore Islamic banks and the Islamic divisions of conventional offshore banks are now allowed to open operational offices onshore in Malaysia to conduct non-ringgit business, while maintaining their presence in the Malaysian offshore financial centre of Labuan. Further tax incentives for the Islamic finance industry are in the pipeline as a sweetener to enhance the country’s competitiveness against rivals like Singapore and Dubai. While their “baby boomer” parents live out their golden years in unprecedented comfort, most Australians under 40 cannot see retirement on their radar, a nationwide public opinion poll has found. These young people, dubbed “generations X and Y”, overwhelmingly believe that the age pension will not exist when they are old, do not expect inheritance windfalls from their parents, and think that they will have to work for the rest of their lives. The research was conducted by the Financial Services Institute of Australasia (FINSIA), a not-for-profit entity and one of the largest financial services organisations in Australia and New Zealand. FINSIA polled 600 people aged 25-44, with an over sample of 200 women, to understand the attitudes and behaviours of the under-40s saving for retirement. The findings were debated during FINSIA’s Saving the Future: Can the Under 40s Afford to Grow Old? summit held in Sydney in July. FINSIA’s CEO, Brian Salter, said that the young people polled accept responsibility for retirement planning, but the rising cost of living – in particular, housing prices and education expenses – are beginning to bite. There are so many competing demands for their cash that young people need “a reliable scheme, an easy way to save for retirement”, Salter said. “The research also questions whether the Federal Government’s ‘back-end focus’ on superannuation taxes will motivate younger Australians to save, given their retirement is decades away.” Salter said FINSIA’s research shows young people appreciate the ease of compulsory superannuation. By their own admission, he says, the majority of under-40s would not be (voluntarily) contributing to their retirement planning at all. However, most feel they should be committing more than 10% of their income to superannuation, and they would support an increase in the current compulsory levy of an additional 3% to 5%. Key findings of FINSIA’s public opinion research include:
China’s efforts to clean up its banking sector and stabilise its booming economy have received a tick from two global credit ratings agencies, Standard & Poor’s (S&P) and Moody’s. S&P has raised China’s long-term sovereign credit rating to A, up a single notch from A-. Similarly, Moody’s has upgraded its credit outlook on China to positive from stable. Analysts say the upgrades are recognition of the growing financial strength of China, the world’s fourth largest economy. According to S&P’s credit analyst Ping Chew, of the Sovereign Ratings group, China has been on the road to improvement since 1999. This upgrade “reflects China’s persistent efforts to strengthen the banking sector to reduce the future fiscal burden”, as well as its continuing economic liberalisation and reform, Chew said. It will further entrench China’s excellent growth prospects, he added. “At the same time, improving fiscal flexibility, robust external liquidity and strong government commitment shield the country from most shocks, and facilitate the process of gradual restructuring. This has also led to progressive improvements in credit fundamentals since 1999.” Moody’s Investors Services cited the continued strengthening of China’s external payments position for its upgrade to positive for the country’s A2 foreign currency bond rating. The move also reflected China’s success in holding down its overseas debt, said Moody’s Vice President, Tom Byrne. “China’s strong external position provides insulation from external shocks and allows the authorities time to introduce market-oriented reforms and restructure the banking system. Continued progress in these areas makes even more remote the probability that the central government would default on its foreign currency obligations.” Byrne flagged that the possibility of a further upgrade in the near-term. This would depend on the Government’s ability to protect China’s fiscal and external positions as it further restructures the economy and introduces WTO-consistent reform in the financial system, he said. Hong Kong also received the thumbs-up (in July) in the latest announcements from two rating agencies. S&P upgraded its status to AA from AA-, the highest rating it has ever assigned to Hong Kong. Fitch Ratings said its recent revision to positive from stable reflects Hong Kong’s strong external financial position and the continued rejuvenation of its public finances. in brief...
China market may be swamped
Carbon companies offered package
Singapore gives advice
China Merchants Bank to list
First Islamic REIT
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