While the Real Property Gains Tax (RPGT) is not likely to be removed in the upcoming Budget 2020, Alliance Bank Malaysia Bhd expects the rate to be reduced amid the current lacklustre property market conditions.

Group’s chief economist Manokaran Mottain said the current rate at 24% was slightly higher than the average capital gain tax rate in Asean, which stands at 23%.

“We do not expect the RPGT to be removed during Budget 2020 since the RPGT has only been revised recently. The government requires the additional revenue stream from the RPGT, ” he said.

“Removing RPGT will not likely be helpful to address the large property overhang as well, given that the government has already introduced various home ownership programmes to tackle the overhang issue, ” he told StarBiz.

Apart from that, the digital tax that would be implemented next year would likely be introduced at a single-digit rate of around 5% to 7% during the initial stage of implementation, Manokaran said.

He said the digital tax should be implemented at a moderate rate during the initial stage so as not to hinder the growth of the digital economy in Malaysia.

It was noted that the digital economy had been growing at a rapid pace, averaging at 9% annually in value-added terms, between 2010 and 2016.

According to Manokaran, the minimum wage issue would likely be another matter to be considered.

He said the government would likely look into increasing the minimum wage once again to tackle the rising cost of living.

Recall, the minimum wage was last revised in Budget 2019 to RM1,100 per month, effective Jan 1,2019, from RM1,000 per month for Peninsular Malaysia and RM920 per month for Sabah and Sarawak.

On Malaysia being a potential beneficiary over the trade conflict between the United States and China, Manokaran said the government should focus on its developmental budget for the external trade segment, particularly with the infrastructure and trade systems to encourage more trade diversion through Malaysia, as well as ease complications and regulations for foreign investors to reallocate their production and businesses in the country.

Meanwhile, in line with the potential relocation of production facilities outside of China due to trade tensions, OCBC Ltd chief economist Selena Ling expected some tax incentives in Budget 2020 to increase Malaysia’s attractiveness as a foreign direct investment (FDI) destination.

“While Malaysia may not be able to compete well with the likes of populous Indonesia and Vietnam, it has carved out a niche in medium-to-high-end manufacturing sector that is more technologically-focused, such as chipmakers.

“That should be safeguarded and enhanced further with potential tax breaks, among other initiatives.

“This would not only capitalise on the China-relocation impetus, but would also allow the country to ride on the secular technological shift towards the Internet-of-Things era, ” she said.

Ling also expected a degree of fiscal consolidation posture from the government in the upcoming budget, with fiscal deficit coming in at about 3.2% of gross domestic product (GDP) in 2020, which would strike the right balance between fiscal consolidation and the reality of growth slowdown.

According to Manokaran, Malaysia’s GDP would likely to expand 4.5% in 2020, from the expected range of 4.5% to 4.7% this year, driven by the steady services sector and manufacturing sector growth.

“The manufacturing sector is expected to remain resilient and supported by the electrical and electronics industry, despite the fact that the sector is currently being weighed down by headwinds arising from the US-China and Japan-South Korea trade wars, ” Manokaran said.

The agriculture and mining sector, on the other hand, was expected to remain subdued, given the volatility in commodity prices, he added.

As for construction, Manokaran said the sector would likely trend higher in the second half of 2020, due to short-term boosts from approved mega projects such as the East Coast Railway Link, land reclamation works of the Penang Transport Master Plan and Pan Borneo Highway.

Source: TheStar.com.my