Short Position

  • Business
  • Saturday, 27 Oct 2018

The case for an inheritance tax  

A LOT of discussion is ongoing about potential new taxes to be introduced in Malaysia.

Prime Minister Tun Dr Mahathir Mohamad, speaking at an investor conference earlier this month, told Malaysians that they need to brace themselves for new taxes, which would involve some necessary sacrifices and pain.

One possible tax, economists say, that could be introduced in Budget 2019 to be tabled next week is the digital tax - making Malaysia the second country in South-East Asia after Singapore to introduce this tax scheme, if that were the case.

However, it is speculation of two other controversial taxes that has got the market riled up.

One is the capital gains tax (CGT) for stock market gains, and the other, the inheritance tax.

For the CGT, the implications are obvious. Taxing gains on Bursa Malaysia would severely hurt an already badgered stock exchange.

The stock market plays an important role in capital formation for the country for businesses to grow and jobs to be created. It should be a last resort thing to introduce this tax, more so at a time when the Pakatan Harapan government is trying to rebuild investor confidence.

However, what about the inheritance tax?

The inheritance tax is essentially a tax imposed on those who inherit the estate of a deceased person.

Malaysia had once imposed this tax, but repealed it in 1991.

The point is, this is a taxation system that can be created to tax the super rich, who make up only a small percentage of the population.

In April this year, the Organisation for Economic Cooperation and Development raised the idea of the inheritance tax to tackle inequality of wealth.

The economic think tank in its report noted that wealth inequality is greater than income inequality and evidence suggests disparities have increased in recent decades.

It said a key aspect of wealth accumulation is that it operates in a self-reinforcing way, ie, wealth begets more wealth. So, in the absence of taxation, wealth inequality will tend to increase, the think tank noted.

Back home, a study by Khazanah Research Institute last week also showed that Malaysia’s income gap has doubled in two decades.

Taxing the super rich a little will hurt them less than taxing the poor, at least that is going by one school of thought.

However, detractors of the inheritance tax argue that often, the tax is seen as being paid by the middle classes, whereas the super rich often avoid it by giving assets away and paying advisers to find other ways around it.

So, an inheritance tax will only be successful if it is set at a high threshold that does not hurt the middle class.


Investors stand in front of private stock trading boards at a private stock market gallery in Kuala Lumpur, Malaysia, Monday, Oct. 22, 2018. Asian markets were mixed on Monday although Chinese benchmarks rallied after officials put a positive spin on the country’s slowing economy. (AP Photo/Yam G-Jun)

Tech stocks in focus  

WHAT goes up must come down. In the case of tech stocks the world over, this adage is proving to be true.

Tech stocks in the US, which saw highs after highs last year, are now seeing regular selldowns. Taking the cue from the country with some of the world’s biggest tech firms, tech and tech-related companies everywhere else are also seeing their stocks slump.

The negative sentiment has not spared local firms.

Over here, companies like KESM INDUSTRIES BHD, INARI AMERTRON BHD and Globetronics Technology Bhd have been pounded badly in recent weeks after having enjoyed good runs earlier.

KESM, for one, is trading at a multi-year low.

The main reason – cooling growth prospects of tech giants and all companies within the supply chain.

In the US, major tech firms have issued a cautious guidance for future earnings, adding to their stock volatility.

For the most recent quarter, heavyweights Amazon and Google parent Alphabet reported disappointing numbers. And the markets punished them for it.

Still, analysts tracking these companies say their fundamentals remain sound and point out that despite missing out on expectations, the firms still showed commendable profits.

Perhaps, it is good that tech stocks in general are seeing a fall in their prices as some are trading at exorbitant price earnings multiples.

If one is a believer that the future lies in all things technological, then now could be a good time to start accumulating some of the sector’s stocks.

That said, timing is crucial in stock-picking and in the current volatility of markets, one must remember the other adage – catching a falling knife – and how to avoid this.


Search for FGV CEO is still on 

FGV Holdings Bhd seems to be bidding its time to fill up the group’s vacant post of chief executive officer (CEO).

The recent appointment of its chairman, Datuk Wira Azhar Abdul Hamid, as the group’s interim CEO further supports the view that the search for a new CEO will likely drag on till next year.

The latest appointment, however, came as a big surprise to market observers, who opine that there must be a clear line drawn between the role of a chairman and a CEO. Furthermore, Azhar is a non-executive chairman of FGV.

Frequently, the role of chairman is seen as the company’s leading representative and presents the company’s goal, business and values to shareholders, the public and the media. The key role of the CEO is to deliver the strategic goals of the company, within budget.

To recap, the FGV CEO’s position has always been a hot seat, which is well reflected by the turnover rate of CEOs since the group got its listing status in 2012. The first CEO was the late Tan Sri Sabri Ahmad, followed by Mohd Emir Mavani Abdullah and most currently, Datuk Zakaria Arshad, who resigned on Sept 18.

For now, FGV is seen to be in capable hands under Azhar, a trained chartered accountant, who more than fits the bill, given his vast experience in managing top plantation groups such as Sime Darby Bhd and Tradewinds Plantation Bhd, to steer the diversified planter out of the stormy weather.

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