September 08, 2010

Tobacco Tax Concern



It is obviously worrying to the tobacco industry but there are many who would want to government to tax' sin industry' to curb the unhealthy smoking habit.

Now, let us hear the apprehension form the biggest industry player  here in Malaysia.

The country's largest cigarette maker, British American Tobacco (Malaysia) Bhd (BAT) , said it would be worried if the government imposed an excise duty increase of more than 5 per cent on the industry this year.

The industry faces a possible excise increase under Budget 2011 as the government looks to increase its revenue and continue its health agenda.

BAT is not opposed to higher excise but wants any increase to be gradual and moderate as, otherwise, it would further fuel illegal trade, managing director William Toh said.

As it stands, the level of illegal trade in Malaysia is at its highest ever. Smuggled and counterfeit cigarettes accounted for 37.5 per cent of total cigarette sales last year compared with 14.4 per cent in 2004, Toh said.

Illegal cigarette trade here is the highest in the world, according to a Goldman Sachs global study last year.

"Anything above 5 per cent (in excise duty) would exacerbate the situation," Toh told reporters at a briefing yesterday.

BAT, which sells brands like Dunhill and Pall Mall, commands two-thirds of the cigarette market in Malaysia.

BAT is also lobbying, through the Confederation of Malaysian Tobacco Manufacturers, against a possible new form of tax on the industry.

It was reported last month that cigarette makers would have to pay half-a-sen for every stick sold as cess to the National Kenaf and Tobacco Board, starting this month.

BAT, however, has not received any formal notification on it as yet, Toh said.

"If cess is imposed, it will lead to higher prices for cigarettes and this will further lead to higher price differentials between legal and illegal cigarettes," he remarked.

It is the increasingly high price gap between legal and illegal cigarettes over the years - it stood at RM3.40 last year compared with just 30 sen in 2004 - that has led to a thriving illegal trade, he claimed.

As cigarettes become more expensive, consumers are more likely to gravitate to cheaper illegal products and the government then loses out on potential revenue, he said.

BAT and its rivals here, JT International Bhd and Philip Morris Sdn Bhd, have seen shrinking volumes as a result. The industry sold 14.9 billion sticks last year, about 10.8 per cent less than the previous year.

This year, assuming a moderate 5 per cent excise duty is imposed, like last year, and no cess, volumes will likely fall at a slower rate of between 1.5 per cent and 2 per cent, Toh said.

Well, it all depends on the government now. Collect more from industry sources in tax and lose out to illegal trade. Enforcement must be strict if they want to reduce smuggling. Otherwise, the 'healthy' culture that the government intends to cultivate will come to nought again!
So, what else is new in Bolehland?



Steps to check household debt


Sharidan Ali's article in the online STAR is worth reading if you hold too many credit cards.

" There are plans in the pipeline to impose stricter credit-card and personal-loan limits to maintain household debts in Malaysia at a healthy level.
According to a banking source, Bank Negara is said to be looking into elements of household financing and may come out with preventive measures.

Chatter within the financial circles reveals that such measures are to ensure that total household debt is kept under control and may see new and tougher limits on the number of credit cards a person can hold as well as a lower cap on how much a person can borrow as personal loan.

“The central bank is still in discussion on the matter and has not reached any decision yet. But, if it decides to implement the measures, it is all purely prudent and pre-emptive as the general non-performing loan ratio is still at a sound level,” the banking source told StarBiz.

The steps being considered are to prevent a build-up of household debt to gross domestic product (GDP), which stood at 76% or around RM516.6bil last year against 63.9% in 2008. The figure averaged around 67% from 2005 to 2008.


Checks with banks showed that the credit-card limit was at the banks’ discretion but first-time applicants were usually given limits of between 2.5 times and three times their salaries. And the credit limit was likely to be gradually increased based on payment history and usage.

For personal loans, the average limit is about four to five times a person’s salary. Some banks offer a flat interest rate of 10.5% while others give between 8.5% and 17%, depending on the loan amount and repayment period.
On average, the maximum amount for a personal loan is between RM100,000 and RM150,000 but it could also be higher if a person’s monthly income is high.

On Monday, StarBiz reported that although household non-performing loan ratio had been on an improving trajectory since December 2008 to 2.5% as at June, the sector’s debt burden had also been increasing steadily, partly due to greater appetite for borrowed funds and also as a result of strategies used by banks.
Personal loans and credit cards on average made up 5% and 3% respectively of banks’ total loans.

Under Budget 2010, a RM50 service tax for principal credit-card holders was introduced with an aim to reduce the nation’s credit-card debt.

Kenanga Research, in a recent sector update, said the consumer segment was still the sole driver for banking system loan growth.

“In July, hire-purchase loans continued to register strong growth rate of 8.8% year-on-year (yoy), the strongest growth rate over the past 12 months,” it said. “Hire-purchase loans in June was 8.4% yoy.”
“Housing loan growth of 14% yoy in July was marginally higher than 13.7% in June,” it added.

The move to curb excessive household debt obligations comes about a week after the news of a possible 80% loan-to-value ratio for mortgages to avert the risk of a property bubble.

As at end-2009, home loans represented 25% of the banking system’s approved loans.

However, the 80% loan-to-value ratio may not be implemented across the board as some banks have suggested it should be more for high-end properties and investments.