Malaysia's business community generally expressed support for and satisfaction with Budget 2004, welcoming the governments determination to rein in the budget deficit even though there are no substantial incentives going their way.
Analysts said although the budget contained no wide-ranging measures for the bulk of companies listed on the KLSE but it could very well see the introduction of the largest plantation company on the stock exchange Felda.
Proposals by Prime Minister Datuk Seri Dr Mahathir Mohamad would see some activity in the telecoms sector with the merger of TMNet with Jaring. And companies in the tourism industry could reap some benefit as more attention is paid to that sector.
Analysts said the creation of a second consortium to undertake oil exploration, production and refining could generate some interest in oil and gas stocks. Investors would also be watching the market's reaction to tobacco and beer companies following the increase in sin taxes.
Many viewed the budget as prudent and proper with the deficit forecast at 3.3% of gross domestic product (GDP) and development expenditure falling for the first time since 1991 considering the vast amounts of money the government has had to spend in keeping the economy afloat the past few turbulent years.
Analysts also noted that the tone of the budget was people-friendly, primarily geared for the lower income group. Also in focus was measures designed to improve the competitiveness of Malaysia in view of globalisation.
The Budget 2004 signals an end to the government's pump-priming campaign,'' said Mayban Securities head of research Zulkifli Hamzah.
The announcement that the government intends to unlock its high-value assets to enhance its financial position reflects the seriousness of the government to move back to a surplus position,'' Zulkifli said.
In the process, it will excite the stock market. The listing of Felda could be a taste of things to come. We could be looking at sale of assets, equity carve-out, mergers and acquisitions,'' he said.
The biggest beneficiary of the budget for the second year running are small- and medium-sized industries. The government's decision to lift the tax threshold for SMIs to RM500,000 from RM100,000, together with creating more funding for that sector, meant that those companies whose chargeable income exceeds RM500,000 would save RM40,000 in taxes a year.
Businesses could also take some consolation that the government has allowed for full tax deduction for expenses incurred in sales promotions and a 50% deduction on entertainment expenses.
It is a comprehensive budget covering all sectors of the economy. There was a lowering of cost of doing business,'' said Universiti Utara Malaysia Prof of taxation Dr Jeyabalan Kasipillay
The greatest thing is the re-introduction of allowances for entertainment expenses. With globalisation, there is a need to incur expenses,'' he said.
While there had been some expectations of a corporate tax cut, many felt that that was not possible considering the position of the budget deficit.
The shortlist of specific proposed tax provisions only 29 did not disappoint us as we had argued that sufficient incentives and tax measures had already been introduced in the 'New Strategies' package last May,'' said AmResearch in a note after the budget.
The main thrusts of the budget strategy remain largely the same and largely expected, which are, getting the private sector to take over from the public sector as the engine of growth, stimulating the services sector but not necessarily shifting away from the manufacturing sector strengthening small- and medium-scale industries, and encouraging greater consumer spending because of their significant and positive multiplier effects,'' the note said.
AmResearch said one major area that was conspicuously missing was details on the new import and excise duties structure for new motor tariffs, which was supposed to have been revealed during the first quarter this year.
The research house said the 21% cut in development expenditure to RM29bil for 2004 could potentially be bad news for construction stocks.
But the option given to property developers to pass on the responsibility of developing low-cost housing to the government is potentially good news for property developers.
Ernst & Young Tax Consultants national tax director Kenneth Lim said the exemption given to foreign sourced income remitted to Malaysia was expected to encourage domestic investment and consumption.
Significant attention has been given to the tax treatment of asset-backed securities, and issuance of Islamic securities to bring the tax treatment of these financial instruments to be in line with conventional financing instruments,'' he said.
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