Malaysia on Track to Bring in FDIs of RM50b by 2030

Malaysia is on track to see more than RM50 billion in foreign direct investments (FDI) by 2030, in the absence of any unexpected economic shocks. This is according to UOB Global Economics and Markets Research. It anticipates FDI inflows, in ringgit terms, to sustain its average long-term 15-year growth trend of 3.6 per cent per annum in the medium term. The absolute annual FDI inflows of around RM51.6 billion (or about US$13.5 billion) by 2030.

Between 2021 and Mar 2024, the Malaysia Investment Development Authority (Mida) had approved almost RM1 trillion worth of investments with committed manufacturing investments making up RM474.3 billion (47.9 per cent), services investments amounted to RM461.8 billion (46.6 per cent) and primary sector investments totalling RM54.2 billion (5.5 per cent). About 77.2 per cent of approved manufacturing projects have been implemented, while about 21.1 per cent are in the planning phase and the balance of 1.6 per cent remain unimplemented. This is in addition to projects in the pipeline that totalled RM128.4 billion as of May 31, this year.

Source: https://en.wikipedia.org

UOB Research said various catalytic projects in the national masterplans, such as New Industrial Master Plan 2030 (NIMP 2030) and National Energy Transition Roadmap, will further enhance opportunities for investments in Malaysia's high-growth high-value (HGHV) sectors.

Johor-Singapore Special Economic Zone (JS-SEZ) and the country's five regional economic corridors will also work to bring in investments. along with Malaysia's efforts to grow its trade ties.

To date, Malaysia has implemented 16 Free Trade Agreements (FTAs, seven bilateral and nine regional) and joined the Regional Comprehensive Economic Partnership (RCEP), Indo-Pacific Economic Framework (IPEF) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The United Nations Trade and Development (UNCTAD) in its World Investment Report 2024 said the global environment for international investment "remains challenging" in 2024 due to economic fracturing trends, trade and geopolitical tensions, industrial policies and shifts in supply chains reshaping FDI patterns, prompting some multinational enterprises to stay cautious on overseas expansion.

FDI inflows are most helpful. But we need to be vigilant of politicians who have a habit of stirring-up issues. Some of which are self-inflicted. Once any foreign/domestic investor decides to abort, it is difficult to change their minds. Hopefully, we have good sense prevailing in the political/economic landscape of Malaysia.

Reference:

Malaysia on track to bring in more than RM50b in FDI by 2023 – UOB Research, Asila Jalil, New Straits Times, 2 September 2024

8 Rules to Live By?

Babette Hughes is a 101-year-old. Her eight lessons for a long and happy life are:

1. Don’t ever believe you’re ‘done’

Some cultural ideas are good, but many are wrong. People give up on their lives much too early. 

When your mind focuses on what the culture teaches us — that we’re done when we get past a certain age — it gets into our sense of self. If our sense of self is to be alone and sad and useless when we are 70, 80, 90, whatever, we believe it. And that’s dangerous. 

These years are the good ones. People have gifts that they may not know they have, and it may take a lifetime to find them. 

Source: https://commons.wikimedia.org

2.  Talk to friends of all ages

My friends are a wonderful source of wisdom, energy and authenticity. 

I have a few friends that are two and three generations younger. I’ve learned from them, and I think they’ve learned from me. Each decade teaches us something else. 

There’s a huge difference between being 30 or 40 and being 90 or 100. And yet, when we come together, it can be fabulous because we all have much to teach each other. It gives us another way to think about things.

When I get together with my friends, we mostly talk. Talk is exhilarating when it’s good.

3. Let little things make your day

It’s not the top of the mountain that makes us happy. It’s the small pleasures. 

We have to understand ourselves so that we can be authentic and find the little things that make us happy. For me, one is reading. Another is being with people I care deeply about — which can be family or friends. It’s a phone call, a visit, an idea, a worry shared. 

4.  Have the courage to be authentic

Courage is probably, for me, the bottom line. It takes courage to look at yourself clearly, to know yourself, and to be authentic. 

But it gives you energy, confidence, and an understanding of yourself and others. In the long run, I believe that being authentic — disagreeing with someone, for example — makes even difficult relationships stronger. 

It’s not the top of the mountain that makes us happy. It’s the small pleasures. Being authentic doesn’t come easily. It takes some work to learn about yourself. But it’s worth it.

5.  Do things you love

When I’m writing, I feel different. I feel better. I feel happier, I feel more centered. I feel more confident. Other writers I know tell me they feel the same thing. There’s really something magical about creative work. Of course, it’s not magic; it’s an expression of the human soul.

The pleasures you get from doing something creative that you love are tied to parts of the self that are not always available or conscious. 

6.  Move your body, rest your mind

For about seven years, I’ve worked out with a trainer twice a week. For a 101-year-old, I’m strong. I can lift 10-pound weights and get up off a chair holding the weights. I’m so proud of that.

When I had pneumonia and I was in the hospital, someone there told me that my exercising probably saved my life. So it isn’t just a good idea — it’s essential. At the same time, you have to get a lot of rest. The brain needs rest in order to rejuvenate.

7.  Don’t get stuck in negativity

Negative thinking is common, and it’s a killer.

Why do some people feel optimistic and some, no matter what they say, it comes out negative? It’s how we’re born, I believe. We come into the world optimists or pessimists. Some people have such difficult times in their lives. If a pessimist would say, “Why me?” I would say, “Why not?”

8.  Do what you know you need to do

As I’ve gotten older, I’ve often been asked, “What’s your secret?” I don’t have a secret.

Longevity is what everyone knows to be true. We all know: Exercise, good diet, a healthy personal relationship with a partner, an understanding of yourself, a career that’s good for you — these are the keys to a happy life. 

Personally, it’s having a purpose for every stage of your life – sometimes being a mentor, sometimes a coach, sometimes an advisor and sometimes being the doer. In all, remember you and I work for the glory of our Creator God.

Reference:

101-year-old says she’s living the best years of her life: 8 rules I live by – don’t believe you’re ever ‘done’, Babette Hughes as told to Stav Ziv, CNBC, 24 August 2024

Electricity Reforms in Malaysia? (Part 2)

A market-driven approach with several players for generation and distribution is helpful for the consumer.  An independent third party is held responsible for transmission and renewal of grid lines.

To be fair, Malaysia intends to introduce its own TPA programme, called the Corporate Renewable Energy Supply Scheme (CRESS), is meant to start in September 2024, as part of a bigger plan to liberalise the energy sector. However, the access charges revealed earlier have got the industry riled up – they are more expensive than what they were hoping for.

The access charges are 45 sen/kWh for those pumping in non-firm renewable energy into the grid while it is 25 sen/kWh if the producer sorts out the intermittency via his own capital expenditure thus only selling firm output of energy through the grid.

The intermittency refers to solar power which is only generated during certain peak hours of the day.

It is yet to be determined if these rates are written in stone or that they are being reviewed by the government with industry feedback. Now, it is too high for healthy competition.

Looking at the 25 sen/kWh charge, where the grid owner doesn’t have to deal with any intermittency issues and is receiving energy in a similar way from what traditional power plants are producing, it is higher than what TNB has stipulated as its transmission and distribution costs. That figure stands at 12.44 sen/kWh.

This figure is cited in the breakdown of all the charges that go into how much electricity is charged in the country, which stands at 39.95 sen/kWh although that doesn’t include imbalance cost pass-through charges (see chart).

If the producer must pay 45 sen/kWh for access charges to the grid, then his end price to his customers will be around 65 sen/kWh, industry experts predict. This price will be more expensive than any green energy tariff in the country. Breakdown of cost structure would be helpful. And perhaps we will understand better if the renewal of grid and distribution network costs require further capex?

Can we get serious and implement a TPA that makes sense?

References:

Taking a leaf of electricity reforms from other countries, Doreenn Leong, The Star, 31 August 2024

Opening the national electricity grid, Risen Jayaseelan, The Star, 31 August 2024

Electricity Reforms in Malaysia? (Part 1)

Many countries have allowed third-party access (TPA) to their power grids as part of broader energy market reforms aimed at increasing competition and efficiency. (Excerpts from The Star, 31 August 2024). TPA enables independent power producers, suppliers, or other entities to access the transmission and distribution networks for electricity, promoting innovation among renewable energy producers. This competition drives advancements in technology, efficiency improvements, and the development of new business models, such as virtual power plants or community solar projects, which can enhance their competitiveness.

Source: https://en.wikipedia.org

The UK was the first country to implement TPA as part of its broader electricity market liberalisation and privatisation reforms. This process began in the late 80s and early 90s. In 1990, the UK’s electricity industry was privatised, and the Electricity Act of 1989 laid the foundation for market liberalisation. This included the unbundling of electricity generation, transmission, and distribution, allowing independent power producers and other entities to access the transmission and distribution networks. The reforms made the UK a pioneer in TPA, setting a precedent for other countries to follow in their electricity sector reforms.

Electricity generators or suppliers in the UK pay fees, known as wheeling charges, to use the transmission and distribution networks to transport electricity from the point of generation to consumers. The charges are a significant component of the overall cost of electricity and are crucial for maintaining and operating the power grid infrastructure. They incentivise the efficient use of the grid and encourage generation and consumption in locations that reduce overall system costs.

The UK’s wheeling charges, which include Transmission Network Use of System (TNUoS) charges and Distribution Use of System (DUoS) charges, vary significantly based on factors such as location, time of use, and the specific electricity network company involved. For example, TNUoS charges for generators typically range from around £2 to £25 per kilowatt (kW) per year, depending on the generator’s location.

Charges are higher in the north of the UK and lower in the south, reflecting the cost of transporting electricity over long distances. For suppliers, TNUoS charges, often passed on to consumers, can range from about £20 to £40 per megawatt-hour (MWh), with variations across different regions.

In Australia, the National Electricity Market operates across several states and territories, with deregulation beginning in the 90s. The market is designed to facilitate competition in generation and retail while maintaining a regulated transmission and distribution network. Australia’s deregulated market has fostered competition and investment in new generation capacity, particularly in renewables. However, it has also faced issues such as price volatility and concerns about supply reliability during extreme weather events. India has implemented TPA to some extent, particularly for large consumers and independent power producers, as part of its electricity market reforms.

Singapore is a prominent South-East Asian country that has successfully deregulated its electricity market. The city-state began deregulating its electricity market in the 1990s, with the process fully implemented by the mid-2000s. The market is managed by the Energy Market Authority, which oversees the competitive wholesale market and retail competition.

Singapore’s deregulation has led to a highly competitive market, with numerous retailers offering various pricing plans, including fixed rates, discounts off the regulated tariff, and wholesale pricing. Consumers will have more options and greater control over their electricity costs, with retailers introducing innovative products and services such as green energy plans and bundled deals.

The actual rates for transmission use of system (TUoS), DUoS and market support services (MSS) charges are regulated by the EMA and are subject to periodic reviews. These charges typically range from 1.5 Singapore cents to 2.5 Singapore cents per kilowatt-hour (kWh) for TUoS, about three to four Singapore cents per kWh for DUoS, and around 1.5 to two Singapore cents per kWh for MSS. The charges are usually bundled into the final electricity tariff that consumers pay, which also includes the cost of energy generation, market administration fees, and the carbon tax.

Despite deregulation, Singapore has maintained a stable and reliable electricity supply, supported by a well-developed regulatory framework and infrastructure. Singapore’s success with electricity market deregulation has made it a model for other countries in the region considering similar reforms.

The Philippines introduced retail competition and open access in 2001, allowing qualified retailers to supply electricity from the wholesale market or generators using distribution utility wires.

In Vietnam, a direct power purchase agreement (DPPA) scheme was approved in July 2024, allowing major consumers to procure renewable energy directly from producers via a private transmission line or through the national grid, a concept commonly referred to as “power wheeling.”

This scheme includes two mechanisms: the physical DPPA, which allows renewable energy generation companies to sell their output directly to consumers with over 200,000 kilowatt-hours of monthly consumption and a 22-kilovolt or higher voltage connection through private transmission lines, and the virtual DPPA, which uses a forward contract to allow renewable energy procurement via the national grid.

However, other South-East Asian countries have been more cautious, with many still maintaining vertically integrated, state-owned electricity monopolies or partially deregulated markets, just like Malaysia. We were among the first to have IPPs. Now it is just Edra, TNB and Malakoff. From a TNB perspective, monopoly is good. But not from the consumer’s point of view. 

References:

Taking a leaf of electricity reforms from other countries, Doreenn Leong, The Star, 31 August 2024

Opening the national electricity grid, Risen Jayaseelan, The Star, 31 August 2024

What is Malaysia’s 5G Conflict?

The introduction of 5G technology will revolutionise key industries such as healthcare, business, manufacturing and smart infrastructure, significantly boosting Malaysia’s economy. In the manufacturing sector, 5G has already enhanced production processes using autonomous robotics, augmented reality and virtual reality.

However, the government’s 5G deployment strategy has sparked a host of concerns, with critics warning that a second network risks wasting billions in taxpayers’ money due to disorganisation and redundancy. They also claim it could result in lower quality services being offered at higher prices. (FMT examined this on 27 August 2024 article).

Source: https://en.wikipedia.org

In 2021, the government awarded Swedish telecommunications giant Ericsson a contract worth RM11 billion to develop Malaysia’s 5G infrastructure under a single wholesale network (SWN) model. Digital Nasional Berhad, a government entity, was set up to build and own the 5G network and sell access to telecommunications companies (telcos) to provide 5G services to consumers. In response, the government decided to divest 70% of DNB’s shares to telcos under a shared subscription agreement. Telcos would collectively hold a 70% stake while the government retains a golden share of 30%.

In December 2022, newly sworn-in Prime Minister announced that the government would review the 5G rollout strategy. Following that review, communications and digital minister Fahmi Fadzil announced in May last year that Putrajaya had decided to transition to a dual network model and introduce a second 5G service provider – to be selected through a tender process – once DNB has achieved 80% coverage in populated areas.

The second network would improve coverage, foster competition and ensure affordable and quality 5G services for the people, as well as provide redundancy to avoid single points of failure. However, critics have questioned the methodology used to select the developer of the second network, saying it would potentially give rise to conflicts of interests, anti-competitive practices, and inefficient use of public funds.

Will RM900 million worth of equipment meant for the current network will go unused? 

And will DNB require an additional RM1.6 billion to maintain its services due to spectrum changes?

The Federation of Malaysian Consumers Associations, recently called for a 

strategic pause in the second 5G network rollout to allow for a reassessment of the financial implications and ensure cost-effective deployment.

The digital divide between rural and urban areas could widen if the second network prioritises more profitable regions.

After RM11 billion and a strategic review, can we afford another operator or a second 5G network rollout? What is going on? The rakyat needs to understand this better. Could the relevant Ministry present a White Paper in Parliament? Why is there a need for another network? Couldn’t the existing telcos buy-in into DNB? Is it about ego, money or other political agenda?

Reference:

Malaysia’s 5G conflict explained, Danish Raja Reza, FMT, 27 August 2024

Ageing Districts in Malaysia!

Eleven districts in Malaysia have been identified as ageing districts, where 7% of the population comprise those aged 65 years and over, according to a report by the Statistics Department. The report presents the population estimates at the state and administrative district levels for 2023 and 2024.

The districts are Beluru, Telang Usan and Mukah in Sarawak; Kuala Langat, Sepang and Kuala Selangor in Selangor; Muallim in Perak; Tenom in Sabah; Seberang Perai Tengah in Penang; Tumpat in Kelantan, and Segamat in Johor. According to the National Policy for Older Persons, a population is classified as ageing when those aged 60 and above comprise 15% of the population.

Source: https://www.wikiimpact.com

The highest number of Malaysians aged up to 14 years as of 2023 was recorded in three districts, all in Kelantan. They are Kecil Lojing (33.8%), Gua Musang (33.4%) and Tumpat (32.3%). The highest percentage of working-age people (15-64 years) were recorded in Sebauh, Sarawak at 79.5%, Kinabatangan, Sabah (78.4%), and Belaga, Sarawak (78.3%).

Petaling in Selangor was the most populous district in 2024 with 2.4 million people, followed by Johor Bahru, Johor (1.8 million), and Ulu Langat, Selangor (1.5 million). Three districts in Sarawak were the least populated. They are Tanjung Manis with 7,900 people, Song (10,300) and Bukit Mabong (10,600). He added that the Kinabatangan and Kalabakan districts in Sabah recorded the highest population growth rate at 9.6%, followed by Cameron Highlands, Pahang at 8.4%.

The policy implications are tremendous. With an ageing population, we need rules, guidelines for care homes and a regulatory unit at each district. In some city councils or municipalities there are guidelines and permits needed but are they being followed? I have a care home next to my house. I objected to it because a residential area cannot just have care homes, kindies, legal firms, medical clinics and the rest of it. You could do that if you re-designate the area to commercial. DBKL has done that in Bangsar. Actually, I am not sure if Lorong Maarof is re-designated but you do have restaurants, kindies, day-care etc. in what used to be single/double-storey bungalows. Could we not put some rigour, thought and feedback to what we could agree on with changing demographics?

Reference:

11 ageing districts identified nationwide, says statistics dept, FMT/Bernama, 30 August 2024

20% Plantations Land Surrendered for Renewal of Leases?

Officials are considering a proposal for plantation companies to return 20% of land leased from state governments as a condition for the renewal of their leases. The Deputy Prime Minister (DPM) said the proposal is being reviewed by the Bumiputera Economic Council in collaboration with state governments and the Federal Territories Ministry.

The DPM as chairman of the council’s steering committee, said the proposal is part of the government’s effort to ensure that the returned land benefits the people.

Upon the expiry of the lease, typically given for 99 years during the colonial era, 20% of the estate land is returned if the lease is to be renewed. This 20% will be returned to the state government, which can then develop it for the benefit of the people, according to the DPM.

Source: https://en.wikipedia.org

Sometime in March 2024, the DPM made comments about Bumiputera Land Corporation to preserve land for the community. (Please see my blog article on the same subject matter published 18 March 2024). If the land lease size exceeds 50 acres (20.23ha) for agricultural land or 20 acres for industrial use, the proposal calls for 20 percent of the land to be handed back to the government upon lease renewal or extension. The returned portion of land would be then overseen by the corporation. 

If you had a small plantation of 50 acres growing oil palm for instance, and if you were non-bumiputera, you have to give up 10 acres upon lease renewal or even a mere extension. That will impact your yearly output. The amount of fresh fruit bunches decreases by 20 percent and so will your revenue. Profit may decrease even more than that because of loss of economies of scale. The corporation may hand it over to a privileged bumiputera who can then sell it back to the original lessor for a huge premium. That’s a quick and easy way to make money.

All of that is going to impact both domestic and foreign direct investments. In five (or less) cycles of lease renewals, I may have nothing! 

Reference:

Govt mulls taking 20% of plantation land for renewal of leases, Bernama/FMT, 1 September 2024

Storm Over Fate of Malaysia Airlines?

A storm is brewing in Malaysia's aviation sector even as a controversy continues over the sale of shares in a state-owned company that manages airports nationwide to a firm owned by an Israeli-friendly fund manager.

This comes amid talk of a "mini-exodus" of employees from MAB Engineering - the company that carries out maintenance work on Malaysia Airlines' fleet of aircraft - to a Singapore company that has been allowed to set up base in Subang.

It is understood that more than 60 employees responsible for the maintenance, repair and overhaul of Malaysia Airlines' aircraft have handed in their immediate resignations after allegedly being poached by SIA Engineering Company (SIA EC), an aircraft maintenance firm owned by Singapore Airlines.

Source: https://en.wikipedia.org

It led to a series of flight delays and cancellations for Malaysia Airlines and its sister carriers Firefly and Amal, as well as technical issues that forced at least three flights to be turned back. Malaysia Airlines, which is only just beginning to overcome the effects of the Covid-19 pandemic following a surge in air travel worldwide, was also forced to reduce flight frequencies to 13 international destinations, citing "supply chain constraints and manpower challenges".

Both MAB Engineering and Malaysia Airlines are owned by Khazanah, which held on to the troubled airline after two tragedies in 2014 - the missing flight MH370 and the downing of MH17 - as well as the Covid-19 pandemic that shook the global aviation industry.

Khazanah also owns the other major component in the aviation sector, Malaysia Airports Holdings Berhad (MAHB), which has been at the centre of controversy over its decision to sell about a third of its shares to Global Infrastructure Partners (GIP), a company owned by US fund manager BlackRock, which faces allegations of complicity in Israeli war crimes.

Government supporters said the deal with SIAEC was conceived in April 2022 under the previous government, through a memorandum of understanding to lease two hangars at Subang Airport to the company for a period of 15 years.

SIAEC's presence should be seen as an investment. The company has to comply with regulations for a 51% local ownership. Some industry players have welcomed competition in the maintenance, repair and overhaul sector.

However, others like transport expert Rosli Azad Khan said the problems at MAB were not new, pointing to unattractive salaries and inadequate training. Many employees had migrated to leading airlines such as Qatar Airways and Emirates.

The think tank Iris Institute said the presence of SIAEC not only put Malaysia Airlines at a disadvantage, but also hindered plans to develop the local aerospace industry. Subang Airport is at the centre of a plan to rejuvenate Malaysia's aviation sector. The Selangor Aerospace Action Plan 2020-2030, which aims to produce more local talent in the sector. But they leave for greener pasture after being trained. So Malaysian workers do benefit from higher wages and new training opportunities.

Singapore is competing with Malaysia to become a regional aviation hub. Is Malaysia ready to compete or just want to be local monopoly? Malaysia Airlines could engage SIAEC or some other MRO for 2 years while rebuilding MAB Engineering?

Reference;

Storm over fate of Malaysia Airlines after mini-exodus of workers blamed on Singapore firm’s presence in Subang, MalaysiaNow, 2 September 2024

Law to Reduce Red Tape: What Next?

The government is tabling the Government Efficiency Commitment Act by the end of 2024 to reduce red-tape. This is according to the Economy Minister. The Act will bind agencies and ministries to make sure, for example, for everyone regulation that is put in, take one regulation out, according to the Minister.

Such legislation is common in other countries and is much needed in Malaysia as a lever for the development of micro, small and medium entrepreneurs (MSMEs). The government’s decision is a commitment to simplify the way we do business, according to Rafizi Ramli.

This is interesting. Many years ago, the government introduced Pemudah, a task force to reduce red-tape. Before that and eons ago, there was MAMPU. Now, an Act of Parliament. What next? Sometimes it is just common sense to cut red-tape. But bureaucrats being bureaucrats, it is difficult to give up a form, a licence or approval. This is not new. India has the British Raj to thank for, for all the permits, licenses and approvals necessary to start a business.

https://en.wikipedia.org

Why can’t we benchmark with Singapore (or some other similar jurisdiction) and implement things without an Act. If we are serious, each Department needs to get feedback and have a third party validate the feedback and act on it. We have charters for departments. But are they monitored? Why will an Act work? Will the offenders go to prison or face capital punishment? Could we then introduce an Act for coffee breaks, “ponteng” or just being lazy?

Reference:

Govt to introduce law to reduce red tape- Rafizi, Zarrah Morden, Malaysiakini, 27 August 2024

Is Malaysia Considering Bringing Back Consumption Tax?

Malaysia is weighing the return of a broad-based consumption tax instead of implementing subsidy cuts for a commonly-used gasoline as the government seeks to bolster its finances, according to some news reports. The Prime Minister’s Cabinet has been discussing the viability of bringing back the goods and services tax (GST) but no decision has been reached.

There is an emerging view in the government that imposing the GST may be politically easier than removing subsidies for the popular RON95 petrol. But bringing in a consumption tax is a political minefield for governments in Malaysia that have struggled for decades to boost tax collection rates, which are among the lowest in Southeast Asia.

PMX has reason to be cautious in bringing back the GST, which was first introduced by former leader Najib Razak back in 2015 at 6% and partly led to his downfall in elections three years later. The subsequent government, led by Dr Mahathir Mohamad, repealed the unpopular consumption tax, and his finance minister said it was used to partly cover up the multibillion-dollar 1MDB scandal.

Malaysia’s government wants to cut its budget deficit to 4.3% of the gross domestic product (GDP) in 2024 from 5% last year by phasing out broad subsidies. Any signs of a shift in government thinking may come when PMX, who is also finance minister, presents the 2025 budget on Oct 18. However, Anwar’s administration is already lifting spending by increasing civil service salaries by over RM10 billion by next year, the first revision in more than a decade.

The Organisation for Economic Co-operation and Development (OECD) recently urged Malaysia to reintroduce the GST at a low rate while compensating low-income households with targeted transfers. Malaysia’s tax revenue accounts for only 12% of GDP.

The nation needs to find additional tax revenues to meet its deficit target and finance future spending needs OECD said. The National Chamber of Commerce and Industry of Malaysia said in May that setting the GST at 4% would be the best way to boost government revenue and tax refund vouchers should be considered.

Malaysia currently uses a sales and service tax, which replaced the GST in 2018 and is not seen as broad-based. The sales tax component stands at 5%-10% for locally manufactured goods and imports, while the standard rate for the service tariff is 8%. The problem with SST is that its base and collection is smaller or lower than GST (RM25-27b vs. RM40b or more). Introducing GST at 4% does not help. Why? Government’s cost alone may add up to 4%.

Currently we have an unfair wealth/income distribution and lower taxes for rich individuals and corporations. Our gross domestic product (GDP) has grown 23 times in real terms (ie after factoring inflation) over the past 50 years. But the median wages of factory workers in real terms is only 1.4 times what it was 50 years ago.

Government revenue has dropped from about 27% of GDP in the 1980s to 12-13% of GDP now. Why? Malaysia has cut its rate of corporation tax from 40% of profits in the mid-1980s to 24% now. It is in competition with Vietnam and Thailand, both of which are taxing companies 19% of profits.

If the Government ever intends to implement GST, remember two preconditions:

(i) Malaysia has to be classified as a developed nation; and

(ii) The inequality in the current system is reduced, i.e. the Gini-coefficient is at 0.3 instead of 0.4 currently.

Meanwhile, look at a broadened “excess profit” tax, Tobin tax and/or higher T10 income tax!

Reference;

Malaysia weighs bringing back consumption tax to boost finances, say sources, FMT/Bloomberg, 28 August 2024

Sinkholes: Can We Avoid It?

On 23 Aug 2024, tragedy struck a visiting Indian national when she fell into a sinkhole that suddenly emerged along Jalan Masjid India, Kuala Lumpur. Relentless search and rescue efforts have followed but the victim has yet to be found. Meanwhile, a wastewater expert has expressed fears that the victim is unlikely to have survived the high speeds at which water flows along the sewer lines.

Sinkholes occur when an underground area can no longer accommodate the weight of its surface terrain. Simply put, these cave-ins are caused by erosion occurring beneath ground level. This phenomenon usually takes place in areas where the surface rock comprises limestone or other forms of carbonate rock, salt beds and other materials capable of being naturally dissolved by groundwater. As flowing water slowly chips away at subterranean foundations and destabilises the bedrock, hidden new caves emerge. These may collapse, creating sinkholes.

Underground erosion may arise both naturally or as a result of human activity. The movement of water is a ubiquitous natural force in our world. It not only shapes landscapes visible to us, such as karst pinnacles and sea stacks, but also creates hidden underground rivers and caves. Limestone terrains are particularly vulnerable to water erosion. Rainfall absorbs carbon dioxide from the soil before converging with the underground water, turning it slightly acidic. This waterflow erodes the limestone sub-terrain and creates a network of cavities and voids. The US state of Florida, which has a geographical terrain primarily composed of limestone, is particularly prone to cave-ins.

Many sinkhole accidents are also attributable to rapid urbanisation. For example, drought and high groundwater withdrawals may reduce the buoyancy of an area and trigger the sinking of sub-terrain areas into cavities. Similarly, changes to groundwater composition due to the introduction or removal of waterflows may flush out looser materials and precipitate sinkholes.

Faulty underground water pipes may also give rise to deadly urban sinkholes. Even a slight gap between these pipes is capable of introducing a large amount of water into adjacent soil, dislodging and eventually causing the subsurface to become unstable.

Despite the growth of cavities beneath the ground, no obvious signs of instability tend to appear above it. With many of our utility pipes placed directly below ground, the paving of roads and pathways often acts as a bridge above sinkholes, hiding insidious voids below. If a cavity is not discovered and resolved in time, the surface is likely to eventually give way and swallow everything above ground.

Although the existence of sinkholes underground is usually not apparent, several subtle signs may hint at a possible collapse of the sub-terrain. Cracks in a foundation, an inability to close doors and windows properly, and the appearance of ground cracks in circular patterns are all tell-tale signs of ground instability which may point to the potential emergence of a sinkhole

As the search for the woman continues, one user took to Facebook to share a journal from 2017 discussing sinkhole risks in various areas of Ampang and Kuala Lumpur.

The resulting maps for sinkhole susceptibility hazard zones data have been classified into 5 prone levels: very low, low, moderate, high and very high risk.

Based on the map shown, the Ampang area has relatively high and very high hazard falls at the centre and western part of the district. The study also found that KLCC and Pudu areas are also at a high risk for sinkholes. This is due to the presence of limestone, marble, and acidic rocks, which are more prone to sinkholes. Meanwhile, TTDI is in the safe zone with the lowest risk.

Sinkholes cannot be avoided unless you are located in TTDI or Bukit Jalil. But the authorities can better manage it with devices or instruments that could tell of possible disasters. In the first place, development should be restricted in high risk areas of Kuala Lumpur. This could even be reflected by valuers and banks financing condo or housing developments by restricting their availability of loans. Next, is to have a monitoring mechanism that could predict the likelihood of a sinkhole developing. Many innocent victims are caught up (or is it down?) in a tragedy of this nature. Let’s not just blame God!

References:

The ‘how’ and ‘whys’ of sinkholes, Rex Tan, FMT, 27 August 2024

2017 study finds Ampang an extremely high-risk location for sinkholes, while TTDI is the lowest, Didi, World of Buzz, 26 August 2024

OECD Recommends Govt Implement GST, Carbon Emissions Tax!

The Organisation for Economic Co-operation and Development (OECD) recommended that Malaysia reintroduce its goods and services tax (GST).

The OECD’s Malaysian economic survey for 2024 said this has to be done because the country needs to increase its revenue as tax receipts only account for 12 percent of the country’s gross domestic product (GDP).

Malaysia could follow this OECD best practice by reintroducing the GST, which was abolished in 2018, according to country studies branch director of the OECD’s economics department. Any possible regression could be offset via targeted aid to vulnerable households. And personal income tax group could be also broadened.

Source: https://selangorjournal.my

GST replaced the Sales and Services Tax (SST) on 1 April 2015. And GST reportedly netted the government RM27.3 billion over eight months. Subsequently, GST provided above RM40 billion in revenue a year. Meanwhile, the OECD report also recommended a carbon emission tax, saying fuel subsidies were ineffective.

When you look at one ratio, tax revenue to GDP, it is persuasive that the ratio should be at 15-18% of GDP (as in western countries or even in ASEAN). In our case, the denominator (GDP) has grown while the numerator has not increased significantly. Partly due to enforcement and partly due to tax base.

GST is not the answer. It is regressive, creates higher inequality, will possibly increase inflation and we are not a developed country yet, like OECD or Singapore. What could we do under a tax reform is to examine tax collection, tax avoidance, new taxes that could be paid by the “rich” individuals or companies with “excess” profit. We have GLCs making RM1 billion a quarter! From whom? The rakyat. So, structure those taxes to make Malaysia more egalitarian, please!

Reference:

OECD recommends govt implement GST, carbon emissions tax, Zarrah Morden, Malaysiakini, 27 August 2024

Ringfence Homebuyers’ Payments?

The Housing and Local Government Ministry (KPKT) is planning to set up escrow accounts for housing projects. This is in order to ensure payments by homebuyers are used exclusively for housing projects that they have bought. An escrow account is an account in which funds are held by a third party or in trust, while two or more parties complete a transaction. Currently, without escrow accounts, a developer can transfer funds from Project A to Project B, leading to Project A becoming abandoned. The Housing and Local Government minister said the ministry is planning to set up escrow accounts to ensure payments by homebuyers are used exclusively for housing projects that they have bought.

                                                                                                    Source: https://ms.wikipedia.org

A proposal has also been submitted by KPKT to the Ministry of Finance to provide up to RM30,000 in deposit assistance for first-time homebuyers. The proposed initiative, dubbed the Madani Deposit, is aimed at alleviating the monthly payment burden of the first-time purchasers, especially youth buyers in the B40 (Bottom 40%) and M40 (Middle 40%) income groups.

The Madani Deposit initiative is one of 33 proposals put forward by KPKT to the Finance Ministry for Budget 2025. Other proposed initiatives include the creation of 100 Madani recreational parks, the transformation of retention ponds and the introduction of electronic property sale agreements with e-stamping.

Since January 2023, KPKT has successfully revived 704 sick or abandoned projects, with a total gross development value of RM58.94 billion. This has helped over 65,000 homebuyers secure their desired homes.

The idea of ringfencing homebuyers’ payments is laudable. This is the same problem faced in China. Evergrande and others have moved funds around, leaving homebuyers in the lurch. The other important piece, the Minister could do is “name and shame’ the errant developers, board members and management. Of course, some are shameless but that’s part of human behaviour. We need to find ways to protect the genuine, hardworking buyers from unscrupulous developers.  There are also some others who may have not set out to defraud people but fallen into difficult circumstances because of external conditions. And that may be understandable.

In any event, KPKT being active is helpful to the average consumer and let’s see better results soon.

Reference:

Govt mulls escrow account to ringfence homebuyers’ payments, Syafiqah Salim, theedgemalaysia.com, 21 August 2024

Are We (Malaysians) United in Diversity?

Generally, we have peace and social harmony in the country but politicians and political parties like to divide us with race and religion. Many do not realise both Bangladesh and Pakistan are wholly disjointed even if they are of one race and/or religion.

We may not have street marches, like in Europe or Bangladesh although we did have some semblance sometime ago under “Bersih”.

Power-sharing arrangements coupled together by the wisdom of our rulers have ensured stability and prosperity for all. But poverty in the Malay heartland and the Borneo states are not being met aggressively. That may also include the urban poor in the PPR flats or living on the streets of KL, JB or Penang.

Source: https://en.wikipedia.org

Officially, the country tries to practice moderate Islam or the “Madani” approach but many “Nons” feel they are moving steadily on a slippery slope to conservatism! PMX panders to all parties so we may not know actually where we are headed! Unlike some truly conservative Islamic societies, women have a role in the public and private workspace. “Glass-ceilings” remain but many are exerting their (women) rights to be CEO or on the Board of PLCs.

We have a framework for “checks and balances” with a 67 year-old Constitution. The legislature, judiciary and executive remain fairly independent, although some may question its veracity. Nevertheless, we do need to admit areas we could improve:

• Education;

• Corruption (or less of it);

• Discrimination in opportunities and employment;

• Racial/religious sentiments for any upward mobility in the public and (to a lesser extent) private sectors; and

• Treatment of foreign labour and displaced people.

Do we have unity in diversity? The simple answer is still “Yes” and “No”. Flying the flag is good but that is not a measure of your loyalty. It is when we:

• serve everyone without prejudice;

• respect each other even if we disagree on some matter;

• cheer together our athletes in the international arena like the Olympics;

• ‘look-out’ for our neighbours without being told to do so;

• enjoy each other’s food, culture and festivals;

• support the poor, the marginalised and discriminated, without race being in the equation; and

• celebrate our diversity and not just tolerate each other, then we are truly united.

God Bless Malaysia!

Reference;

Inspired by Unity in Diversity: Attributes That Bind by Emeritus Prof Shad Saleem Faruqi, Star, 28 August 2024