November 23, 2018

Volume II, Issue 30

Deloitte: New Taxes to Come in 3-5 Years’ Time

New taxes coupled with broadening of Sales and Services Tax (SST) is expected to take place in the next three to five years, said Deloitte Malaysia Executive Director-Business Tax, Chia Swee Hoe. Chia said the six per cent SST is also expected to be increased over the same duration to cover the government’s revenue shortfall of more than RM20 billion, after abolishing the Goods and Services Tax (GST). 

Right now, only 38 per cent under the Consumer Price Index (CPI) is now under SST compared to 60% under GST. I believe this would be broadened from time to time, in line with a salary increase,” he said at the Real Estate and Housing Development Association (Rehda) 2019 Budget Commentary on Tuesday.

Chia also said that the new taxes would focus more on consumption, but added that the government needs to look into the rising cost of living before implementing any new tax. “In the future, the government might modify and rebrand SST into a more structured tax system,” he said.

Under the 2019 Budget announced on Nov 2, the government will impose an excise tax of 40 sen per litre on sweetened beverages starting April 1, 2019, while a digital tax will be implemented from Jan 1, 2020.

Meanwhile, MIDF Amanah Investment Bank Bhd’s Chief Economist Dr Kamaruddin Mohd Nor said the ringgit’s performance is still resilient compared to other currencies like the Indian rupee and Indonesian rupiah.

The weakening of the ringgit now is due to external factors such as the trade war, oil prices and the strengthening of the US dollar. These factors are something we cannot control,” he said. 

He added that Malaysia’s economic fundamentals are still strong and the domestic economy is still resilient, helping to push the ringgit by year-end. “The ringgit is now undervalued and we hope it could reach 4.10 by year-end,” he said.

The ringgit is currently at 4.1940/1970 versus the greenback from 4.1860/1900 at the close yesterday while Brent Crude stands at US$69.38 per barrel. 

Source: The Edge Markets

Faster Malaysian Growth Seen in Q3

Malaysia’s economy is likely to have grown faster in the third quarter of this year amid an increase in private spending during the consumption tax holiday period. A Reuters’ poll showed the median forecast from 15 economists is for Malaysia’s gross domestic product (GDP) to grow 4.6% year-on-year (y-o-y) between July and September. This compared with the growth of 4.5% (y-o-y) posted in the preceding quarter.

Pent-up demand during the consumption tax-free period was a silver lining for third-quarter 2018’s GDP growth even though the drag from commodities deepened. Overall, we expect GDP growth to improve to 4.6% y-o-y in the third quarter of the year,” the brokerage wrote in its Nov 9 note.

Similarly, TA Research said GDP growth for the three months to September would likely have accelerated on a favourable base effect.

Despite the weak mining result, we still opine that the third-quarter 2018 GDP growth would remain resilient premised on the favourable third-quarter 2017 trade and manufacturing data,” the brokerage said in its recent note.

Growth will remain privately-led, supported by steady private investment amid resilient consumer spending on the back of the tax holiday period,” it explained.

Echoing a similar view, Standard Chartered said private consumption was strong despite the reintroduction of the sales and service tax, or SST, on Sept 1 to replace the goods and services tax (GST) that was abolished on June 1. The bank said the absence of the GST in July and August may have boosted private spending during those months. But overall GDP growth between July and September was likely to have been weighed by weak crude oil and natural gas production.

Contrary to market view, MIDF Research said Malaysia’s third-quarter GDP growth would likely have slowed to 4.2% y-o-y – the lowest in nine quarters – despite strong private consumption.

Malaysia’s economic activities sustain on an upward trajectory amid resilient domestic spending. However, heightened trade tension, a slowdown in industrial activities and sluggish crude palm oil prices are among dragging factors in economic growth for the third quarter,” the brokerage explained.

Source: The Star

Malaysian Palm Oil Price Falls below 2,000 Ringgit for 1st time in 3 years

Malaysian palm oil futures fell below the 2,000 ringgit level for the first time in three years on Wednesday, weighed down by losses in related edible oils on China’s Dalian Commodity Exchange and lower than forecast year-end inventory levels.

The benchmark palm oil contract for January delivery on the Bursa Malaysia Derivatives Exchange closed down 1.7 percent at 1,973 ringgit ($470.38) a tonne, its seventh consecutive day of losses.
It earlier fell as much as 2.1 percent to 1,965 ringgit, its weakest level since August 2015. Trading volumes totalled 55,797 lots of 25 tonnes each on Wednesday.

Yesterday crude oil came down a lot. Dalian is also sharply down. All this not good for the palm market,” said a Kuala Lumpur-based futures trader.

He said prices could decline further as stockpiles in Malaysia, the world’s second largest producer and exporter, could rise from current levels. Official data from the Malaysian Palm Oil Board on Monday showed end-October stockpiles grew 7.6 percent to 2.72 million tonnes, while production rose 6 percent to 1.96 million tonnes.

The trader said a revision to a leading analyst’s forecast for Malaysian inventories in December also contributed to the decline in palm. Malaysia’s palm oil stocks at end-December are expected to climb to 3.5 million tonnes, said Dorab Mistry at an industry conference in China on Wednesday. He also raised his forecasts for Indonesia’s 2018 palm oil output to 41 million tonnes from 38.5 million tonnes. Mistry previously forecast that Malaysian stocks are expected to finish this year at between 3 million and 3.3 million tonnes.

In other related edible oils, the Chicago December soybean oil contract was down 0.2 percent, while the January soybean oil contract on the Dalian Commodity Exchange dropped 1.6 percent. Meanwhile, the January palm oil contract fell 2.2 percent. Palm oil prices are affected by movements of other edible oils as they compete for a share in the global vegetable oil market.

Palm oil is expected to break a support at 1,996 ringgit per tonne, and fall into a range of 1,933-1,972 ringgit, according to Reuters market analyst for commodities and energy technicals Wang Tao.

Source: The Star

PUMM: Trade Dispute Offers Joint-Venture Opportunities with Chinese Companies

The Malaysia Entrepreneurs’ Development Association (PUMM) expects more joint-venture and export opportunities between Malaysian and Chinese companies amid escalating US-China trade tensions.

President Datuk See Kok Seng said many Chinese companies were starting to use Malaysia as a platform to bring semi-finished products to be assembled and reproduced here and then re-exported to the third countries.

Malaysia, in the short term, will benefit from this situation. Many more manufacturing companies from China may come here and enter into joint-ventures with local partners. We have already seen a few in the Port Klang area. They are using the port to re-export their products,” Datuk See said.

Hence, See said the association is reaching out to more segments of the business community to establish international links with overseas markets, mainly China and other emerging countries.

Our outreach programme will focus more on young and women entrepreneurs. We are also having a programme to assist the needy to become entrepreneurs, emphasising on digital economy and Industry 4.0,” he said.

Nevertheless, he hoped the government could assist SMEs, particularly start-ups with low-interest loans or financing to help them strengthen their footprint in business.

Source: Bernama

Renewed Calls for HMM to Merge with SM Line

The Korea Shipowners’ Association (KSA) has renewed calls for Hyundai Merchant Marine (HMM) to merge with fellow South Korean carrier SM Line to become more competitive against the leading European shipping lines.

The plea came from KSA vice-chairman Kim Young-moo during an interview with Aju News and comes at a time when shareholder frustration with leadership of the loss-making carrier intensifies. HMM recently placed an order for 20 mega ships, comprising of 12 ships of 23,000 TEUs and eight of 15,000 TEUs. The newbuilds are due to be delivered from the second quarter of 2020 and just when the shipping line’s current vessel-sharing agreement with the 2M Alliance ends, reported IHS Media.

Whether the partnership will be extended remains to be seen since HMM will likely need to demonstrate that it is a viable business, although it would by then have the mega ships required to join the 2M’s Asia-Europe strings.

Keeping one’s head above water in the current container shipping market is tricky for any carrier given the rising bunker fuel costs, unprofitable freight rates and high level of excess capacity.

According to IHS Markit, the global containership fleet is expected to expand by 6.2 per cent this year, surpassing a 4.8 per cent increase in global trade. In 2019, global capacity is forecast to grow by 2.6 per cent and volume by 5.5 per cent.

State-owned Korea Development Bank (KDB), the primary lender and shareholder of HMM, is hardening its stance towards the financially strapped ocean liner. Bank chairman Lee Dong-gull has made it clear that non-performing staff of HMM will be made redundant.

HMM has to provide a report on its performance every week and we will issue a warning if we don’t see improvement after a month; three more months will be given to show improvement. If things don’t get better, the staff concerned will have to leave,” Mr Lee was quoted as saying.

HMM has clocked up US$1.62 billion of cumulative losses for 13 quarters, including a first-half net loss this year of $155 million.

Like its peers, the shipping line is struggling to raise freight rates to levels that compensate for rising fuel costs. The first-half loss was incurred despite a double-digit surge in volume in the second quarter as fuel prices during the period rose by 40 per cent year on year.

The pressure to recoup higher bunker costs will only rise, as the January 1, 2020, implementation date for the International Maritime Organization’s (IMO) new rule capping sulphur content in marine fuel at 0.5 per cent draws closer. Analysts estimate that using lower sulphur fuel will push up costs by at least 30 per cent, an extra burden that carriers may or may not be successful in passing on to customers.

Source: Shipping Gazette

BIMCO Adopts 2020 Bunker Clauses

International shipping association BIMCO has developed two new bunker clauses dealing with general compliance and the transitional period for the International Maritime Organization’s 2020 MARPOL requirements for the maximum sulphur content in marine fuel.

In addition to its other duties, BIMCO is leading provider of maritime clauses and contracts covering the full lifecycle of ship-related operation and activity.

The Global Marine Fuel Sulphur Clause for Time Charter Parties was approved by BIMCO’s Documentary Committee at its meeting in Copenhagen on Tuesday. The clauses are set for an early December.

It is very important that the new sulphur clauses are ready well in advance to allow the parties to prepare ahead of 1 January 2020,” when the IMO requirements enter into force, says Peter Eckhardt, chairperson of the drafting committee and Head of Chartering and Operations at Reederei F. Laeisz.

The Global Marine Fuel Sulphur Clause for Time Charter Parties will help them do exactly that, as it sets out the obligations and responsibilities of owners and charterers to comply with MARPOL Annex VI sulphur content requirements,” Eckhardt says.

The clause states that charterers are obliged to provide fuel that complies with MARPOL requirements, grades and specifications set out in the charter party, and it is a general compliance clause. It also states that charterers must use suppliers and bunker barge operators who comply with MARPOL and that shipowners will remain responsible for the fuel management.

The second clause discussed at the Committee meeting in Copenhagen deals with the transitional period from the end of 2019 to the beginning of 2020. The two clauses will be published as one package.

The clause focuses on cooperation between owners and charterers to minimise quantities of non-compliant fuel on board by 31 December 2019.

It states that any remaining non-compliant fuel on board after 1 January 2020 has to be removed no later than re-delivery or 1 March 2020 – whichever comes first. It also states that removal of non-compliant fuel must be done at the charterers’ cost, while tank cleaning must be done at the cost of the shipowners.

Source: gCaptain

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