Government in a bind over GST implementation

by Syarina Hyzah Zakaria
Edge, 19 October 2011
KUALA LUMPUR: The government has again delayed the implementation of the goods and services tax (GST) as it wants to have greater acceptability and enough time to educate the people on what the GST really is, said Veerinderjit Singh, managing director of independent tax advisory firm Taxand Malaysia Sdn Bhd. In a seminar on Budget 2012 yesterday, Veerinderjit said the timing of the GST has always been a crucial point but in light of the global economic uncertainties and high prices of commodities, the acceptability among the rakyat becomes a sensitive issue. “Perhaps it (the GST) should have come earlier (before the current economic uncertainties). We may have missed the boat in a sense,” he added. Veerinderjit said once a law is passed on the implementation of the GST, there would be a 12- to 18-month period to allow businesses to change and make the necessary adaptations to the new tax system. He stressed the importance of the preparation period as it provides a window to further educate the public. In the past few years, the business sector had already been made aware of what the GST entails; the main issue now lies in educating the lower-income group which Veerinderjit sees is more resistant of the GST. “The government is probably having a difficult time grappling with the issue largely because of the large number of the low-income group,” said Kang Beng Hoe, executive director of Taxand Malaysia. He said only two million of the 14 million workforce in Malaysia pay taxes. At present, due to the structure of the economy, there are a number of people in the labour force who are falling out of the tax net as their income levels are too low to be taxed, Veerinderjit said. The mentality is “if I don’t pay income tax, then when I pay the GST later, I’m now paying a new tax”, he said. He said the assistance given to help the lower-income group had resulted in a subsidy mentality where the tendency is to depend on the government. The government has made it its priority to change this mindset, he added. “Introducing something which is considered new by the lower-income group is an issue,” he said. Another issue is the large subsidies it has to pay to support the lower-income group. Kang said the government has clearly stated that over time, they want to claw back the subsidies but the question is, which should come first? “So you have two things pushing in opposite directions, should you be clawing back subsidies first or should you be implementing the GST?” he said. The government has to find a way to reduce the deficit, achieve a balanced budget, as well as grapple with the issue of how to slowly take away subsidies and introduce the broad-based GST, Kang said. Veerinderjit and Kang both cited lessons from the success Singapore has had in implementing the GST. The initial GST rate was set at 3% and is currently 7%. Singapore’s corporate tax was previously around 25% but after the implementation of the GST, it was subsequently brought down to 18%. They added that Singapore is at present classified as a tax haven due to their tax structure, and this proved that Malaysia too could have successful implementation of the GST.

Elizabeth: Non-Revenue-Water may hit 40% due to SYABAS incompetence

by Maria Begum,
 
Malaysia Chronicle, 28 October 2011

The Selangor state government is worried about the level of Non-Revenue Water (NRW) and the failure of water concessionaire SYABAS to resolve the problem, despite years of trying but to no avail.

Elizabeth Wong, the executive councilor for Tourism, Consumer Affairs and Environment, slammed SYABAS for failing in its duty to manage the water piping system, through which most of the leakage occurred.

According to Elizabeth, who is also the Bukit Lanjan assemblywoman, SYABAS had a duty to fix the problem swiftly and well under the terms of the privatization agreement inked with the state government.

“If SYABAS cannot afford to reduce NRW to a more acceptable level, it will create a direct impact on the supply of clean water to consumers,” Elizabeth said in a statement.

NRW to exceed 40% due to SYABAS' failure to resolve piping problems

She warned that a report by National Water Services Commission had stated that SYABAS was still struggling to bring the NRW below the 30% target.

The National Water Services Commission now predicts that NRW will shoot beyond 40% until 2020, an alarming trend given the already tight water supply situation in the state.

Although the NRW level in Selangor has been reduced to 32.8% in 2009 compared to 38.43% in 2005, the rate increased again in 2010 and 2011.

Elizabeth added that without enough clean water supply, it is possible that the much-feared water crisis in the Klang Valley will take place as predicted by the federal government although the seven dams in Selangor actually have enough capacity to accommodate all consumers in the state.

Stop trying to force Sungai Langat on us

She took to task Puncak Niaga, a sister firm of SYABAS which is controlled by Selangor Umno's Rozali Ismail, for failing to maintain and keep in good condition two water treatment plants.

“A report by Ranhill found two water treatment plants – Kalumpang and Sungai Sireh – require a big rehabilitation whereas 18 other water plants require smaller scale of rehabilitation,” said Elizabeth.

Thus, she added, it was not a surprise that the plants were functioning below capacity although they could produce enough clean water if they were managed well.

She accused the federal government of taking advantage of these issues to play up the need to build a new water treatment plant in Sungai Langat for its own purposes.

Pundits had said this was a blatant abuse of power and reeked of possible corruption as the firm that would get the contract was alleged to have links with Umno.

If we manage, we can reduce NRW to 10%

Elizabeth accused the federal government of delaying tactics in order to pressure the state government into a deal to benefit an Umno crony. The sooner the federal government allowed Selangor to manage its own water assets, the quicker it could resolve the problems, she said.

“If the state government takes over the management of water, we are convinced that NRW issue will be reduced to around 10% and there will be no problem in supplying water that already saw an increase in demand by up to 10% every year,” said the Bukit Lanjan state assemblyperson.

She pointed to the recent water shortage at an area near to the Subang Airport caused by broken pipes as an example of the mishandling and inability of SYABAS to fix problems swiftly.

While the residents suffered inconvenience and shortage of water, the leakage had caused great wastage of good clean water - exacerbating the NRW problem.

“The company has failed to use green technology like water treatment in containers which is far easier to do, cheap and fast compared to building said Elizabeth.

MCMC’s new chairman faces many challenging issues

by B.K. Sidhu

STAR, 21 October 2011

DATUK Mohamed Sharil Tarmizi has got himself onto a “hot seat”.

The task at hand is arduous as there are a lot of issues that need sorting out.

Despite that, there were many others vying for the hot seat. Perhaps it is the power that comes with the position that attracts so much interest.

Sharil is the new chairman of the Malaysian Communications and Multimedia Commission (MCMC) and his appointment is effective Sunday. He takes over from Tan Sri Khalid Ramli, who during his two-year term, was well known for helping to widen the reach of Internet to the interiors of the country.

Sharil is akin to a homegrown candidate as he has been with the commission for nearly a decade, although he left after his first six-year stint but came back in 2008 to become chief operating officer.

Globally, he has worked on various projects with the International Communications Union. So his appointment as MCMC chairman came as no surprise to the industry.

But the job that awaits him may surprise him as there are loads of issues and the journey could be arduous.
The biggest issue is transparency and he needs to address that, be it from the way the Universal Service Provider funds are used to how the 2.6G spectrum is being allocated to nine players, the deafening silence over the 700MHz spectrum and the long-overdue tender bid for terrestrial digital TV, among others.

The way he handles them would be closely watched both locally and globally as foreign investors want to know how sound the policies are for them to invest, or whether the would be flip-flops.

This becomes more pressing since the Government has said in the Budget 2012 proposals that 17 services sub-sectors, including telecoms, would be liberalised and the idea behind that is to attract foreign direct investments (FDIs). The country needs FDIs and the area of content and services can do with some foreign players.

Looking from the licensing regime, it took a new format and course when the vertical type of licensing that is based on technology type of services was changed to a horizontal type of services, thereby creating different categories of players such as network facilities providers (NFPs), network service providers (NSPs), application service providers (ASPs) and content application services providers (CASPs).

As someone put it: “It is meant to be an inverted pyramid with smaller numbers of NFPs, a bit more NSPs, and open basket of ASPs and CASPs. The rationale was to have more NSPs and ASPs so that there will be competition and choices but along the way, we may have given too many NFPs and this has resulted in a lot of investments going into network infrastructure building, thereby creating duplication of networks.''

There are also lessons to be learnt from the second round of 3G spectrum award. One company that deserved the spectrum did not get it but two others were given. One of the two did not roll out the services and eventually sold the spectrum to the deserving company, but at a high premium. So, future award of spectrum has to be done with thorough evaluations.

Malaysia was one of the first countries to introduce convergence but it is hard to benchmark the achievements because along the way, the theme of convergence somehow has got diluted.

Whatever has been done up to now has served a specific purpose although the glaring issue over clarity remains. We need the better of it.

Perhaps the first thing that Sharil can do is to take stock and do some soul searching to set things straight for the better of consumers, the industry and the nation. But time is a factor and he knows that too well.

My bet is that the dynamics of change is apparent at the commission. So, stay tuned.

Energy Commission justifies early bidding for Tanjung Bin project

STAR, 22 October 2011

KUALA LUMPUR: The Energy Commission has clarified that the bidding process for the Tanjung Bin power station project was conducted five years before it begins operations in 2016 because construction of such a large-scale power plant would require at least five years on a brownfield site.

The project in Johor, which is to develop and operate the 1,000 MW coal-fired power plant, was awarded to Transpool Sdn Bhd, a subsidiary of Malakoff Corp Bhd, via a competitive restricted bidding process conducted by the commission from Nov 15, 2010 to April 15, 2011.

The project is needed to meet the projected demand in 2016 following the cancellation of the proposed submarine cable from the Bakun Hydroelectric Project.

“Greenfield development will require a longer period to undertake the Environmental Impact Assessment (EIA), detailed site identification and assessment.

“Based on the projected economic growth, failure to award such a project on time to achieve commercial operation in early 2016 will result in potential brownouts in the country,” the commission said in a statement yesterday.

It was responding to a recent statement by Petaling Jaya Utara MP Tony Pua.

The commission said the brownfield site option was chosen for the bidding process.

“Following an assessment by the Energy Commission, there are only two suitable brownfield sites that can meet the timeline requirement, and they were therefore short-listed for the bidding process.

“The evaluation of the bid proposals was conducted by a team consisting of officers of the Energy Commission as well as reputable financial, legal and technical international consultants appointed by the Energy Commission,” it said.

It said the tariff and concession period had already been determined through the competitive bidding process, adding that the final tariff submitted by the winning bidder and approved by the Government was very competitive compared with similar projects in the region. – Bernama

Railway revamp

STAR,  27 October 2011

KTM Bhd (KTMB) will undergo a two-year corporate restructuring programme to turn around the ailing national rail operator and a consultant will be hired to manage this, according to the Treasury, in its reply to the Auditor-General's (A-G) report.

The A-G's report had stated that KTMB posted a loss of RM92.6mil in 2009 compared with RM84.6mil loss in the previous year.

The Treasury said that apart from high operational costs, the losses were also due to a decline in cargo transportation earnings by 50% in 2009.

One of the reasons for this was insufficient train capacity of the State Railway of Thailand to support KTMB's cross-border services.

Insufficient capacity: KTMB does not have enough electric multiple sets to support its commuter train services.

KTMB also did not have enough electric multiple sets to support its commuter train services.

KTMB's associate company KL Sentral Sdn Bhd also saw a 70% decline in revenue during the year under review. KTMB also suffered an asset depreciation charge of RM265mil in 2009.

According to the Treasury, the Finance Ministry has directed KTMB to present its financial and non-financial reports to the Government on a quarterly basis.

The A-G's report also stated that KTMB must tackle its problem of having a high number of outstanding debtors in order to achieve healthy cash flows.

As of end-2008, KTMB had failed to collect debts amounting to RM40.7mil and RM3.8mil more was owed to its subsidiary.

The A-G's report also found that KTMB had not charged any interest on overdue credit extended to its customers.

The report suggested that KTMB institute legal actions against companies or individuals who failed to settle their debt.

However, it acknowledged that part of the problems with KTMB's debt collection was due to its failure to renew its land lease with the Federal Land Commissioner.

It added that the land lease contract had expired and because of this, KTMB was unable to collect debt, rent or take legal actions.

The A-G's report noted that the Transport Ministry, had on April 8 2010, decided that Perbadanan Aset Keretapi (PAK) would become the custodian of all land belonging to KTMB under the Railway Act 1991.
PAK would manage all land matters relating to KTMB, including land rental.

KTMB was also in the process of drafting a new credit agreement (cargo) that will include a clause on interest charges.

The report added that KTMB had begun legal proceedings against some cargo debtors.

Government spent RM1.2b keeping IWK afloat

By Shannon Teoh

Malaysian Insider, 5 October, 2011

 

KUALA LUMPUR, Oct 5 — Putrajaya said today it had spent RM1.2 billion to sustain Indah Water Konsortium’s (IWK) operations since nationalising the national sewerage company in 2000.

The finance ministry said in a reply to a parliamentary question from Anthony Loke (DAP-Rasah) that IWK has liabilities amounting to RM2 billion, while its assets were valued at about RM1.2 billion.

“The government has spent about RM1.2 billion to cover IWK’s operational deficit due to low sewerage tariffs as compared to the true cost of operations.

“IWK’s total liability up to June 2011, most of which are government support loans, is RM1.98 billion,” it said in a written reply.

The finance ministry also said that there are no plans to privatise IWK but the Energy, Green Technology and Water Ministry would be restructuring the sewerage industry, reviewing sewerage tariffs and guaranteeing future capital expenditure.

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah had said on September 10 that IWK would be merged with a government unit, confirming a report by The Malaysian Insider.

Ahmad Husni said that the merger process was already underway but declined to disclose the name of the government subsidiary, except to say that IWK would continue to be government-owned after the merger.

The Malaysian Insider reported on September 8 that IWK would be privatised into a consortium led by strategic investment agency 1MDB, some 11 years after the government was forced to bail out the national sewerage company from financial difficulties under its previous owners.

Finance Ministry sources told The Malaysian Insider that the 1MDB-led consortium will include water distribution company Puncak Niaga, and that the deal has been given the nod by the Economic Council chaired by Prime Minister Datuk Seri Najib Razak.

However, it is understood that some ministry officials are still scrutinising the deal amid concerns about its feasibility and worries over whether the government could once again be forced to bail out the company if the latest plan fails.

Under the proposed deal, the 1MDB consortium will acquire IWK for RM1 and take over its debts which include more than RM1.5 billion in loans still owed to the ministry.

The consortium is seeking a 60-year concession from the government and will only pay back the principal amount and interest on the loan over the long term.

Bumis ‘typically’ sold government contracts for cars, houses, leaked study reveals

Malaysian Insider, 20 September, 2011

KUALA LUMPUR, Sept 20 — An unpublished Works Ministry study found that Bumiputera contractors as a rule sold their government contracts to buy luxury cars and houses apart from misusing payments received from the Treasury, according to a leaked US diplomatic cable.

The cable, revealed by whistleblower website WikiLeaks, comes just after Putrajaya agreed to allocate RM8 billion worth of contracts in the country’s most expensive infrastructure project, the Klang Valley Mass Rapid Transit (MRT), which initially set strict rules for its contractors.

The US diplomatic cable quoted a Works Ministry source as saying the “Study on Bumiputera Contractor Leakage” was the result of feedback from various industry sources on failed and successful projects. The report was used by then-Prime Minister Tun Abdullah Ahmad Badawi (picture) to castigate failing Bumiputera businessmen in February 2007.

“The current system of awarding lucrative government contracts to Bumis provides them with a strong economic incentive to simply act as agents, turning over as many projects as possible and taking a cut before handing each one off to a competent non-Bumi implementer.

“This ‘Bumi agent’ system is firmly entrenched in Malaysia. Any effort to make reforms is likely to be resisted not only by well-established Bumis, but also by the non-Bumi implementers who have built up a network of well-oiled agent partnership,” the US Embassy concluded in the report published by the Malaysia-Today news portal.

The US and European Union have called for more transparency and equality in government procurement by Malaysia as part of the free trade agreement talks which have yet to be concluded.

In the leaked cable, the US embassy reported: “The source said the study, which has not been released to the public, revealed that many Bumi contractors typically sold off their tenders for quick money, often to finance expensive cars and houses. The report also found Bumiputera contractors had misused payments received from the government to pay off creditors and that they often sought additional government tenders prior to completing the ones already awarded to them.”

“The official said contractors were irresponsible and had abused the trust given to them by the government which was meant to help Bumiputeras progress,” it added.

The US cable noted that then-Finance Ministry secretary-general Tan Sri Izzudin Dali had disclosed new regulations that Bumiputera contractors seeking government tenders will soon be required to sign an official declaration promising not to sell or subcontract their tender to other races.

“Violators will have their contracts and registrations terminated. Izzudin added that under the new rules contractors undertaking public infrastructure contracts will now be awarded only one project at a time and that projects will be distributed evenly among contractors in the same area or district,” the cable said, quoting Izzudin’s speech on February 16, 2007.

Incidentally, Izzudin recently completed one term as chairman of Syarikat Prasarana Negara Bhd (Prasarana), the original project owners of the MRT which is now owned by a new Finance Ministry unit called MRT Co. Sources said his strictness in selecting successful contractors had delayed the massive infrastructure project.

The cable also quoted then-executive chairman Datuk Moehamad Izat Emir of the Malay Entrepreneurs and Merchants Association as saying payment was the main issue facing the contractors.

“He said that while Abdullah had directed the disbursing agency to pay the contractors within two weeks after completing the work, this often does not happen,” the cable reported, saying Moehamad suggested Bumiputera contractors be trained to upgrade their skills and suggested government-linked companies (GLCs) be required to support these contractors.

It noted that Roslan Awang Chik, of the Malay Contractors Association, shared Moehamad’s view that “competency comes from exposure”.

“He is puzzled why many well-known and qualified Bumiputera contractors were not being awarded government contracts while several unknown ones were. He suggested the government blacklist any contractors found to be selling their tenders,” the cable said, quoting Roslan as saying “they can be considered traitors.”

The US cable was sent to Washington after Abdullah had publicly expressed frustration and disappointment over findings from a recently released Works Ministry report showing 85 per cent of government contracts awarded to Bumiputera contractors.

“They (Bumiputera) do not want to work, do not want to learn, and give little importance to the opportunities provided by the government...

“This approach will only make us hope and wait for aid and subsidies. Such a mentality thrives among the people, including Bumiputera petty traders and contractors,” the report quoted Abdullah as making the comments at a dinner speech on February 13, 2007.