Can you escape the RPGT?

The rush is on. They are stampeding to sell whatever high-value property on their hands before the 5% real property gains tax (RPGT) kicks in on January 2010.

But the important thing is you must know what you are selling. If you have freehold titles, you may have less problems. But if it is a leasehold property you are trying to desperately sell off,your efforts will probably be in vain.

How will these property sellers' great hopes be shattered? If, these need government approval before a sale can be effected,that's how.

A tax specialist tells it like it is. Obtaining official approval could push the sale date to one after Dec 31 — the last day before the reintroduction of RPGT. So your efforts will come to naught!

KPMG Tax Services executive director Tai Lai Kok told the Singapore Business Times that many transactions involving property could require state approval.

Under the RPGT Act, where a contract for the disposal of an asset is conditional and the condition is satisfied (by the exercise of a right under an option or otherwise), the acquisition and disposal of the asset shall be regarded as taking place at the time the contract was made.

Sadly, there are two exceptions: where the acquisition or disposal requires the approval by the government or an authority or committee appointed by the government, the date of disposal shall be the date of such approval; and where the approval is conditional, the date of disposal shall be the date when the last of all such conditions is satisfied.

However, the RPGT Act does not define the term “government” — whether it refers to the state or federal government. In any event, because land matters come under state control, a number of these transactions could invariably require state approval. “Lawyers would need to review the individual title to see what restrictions and caveats there are to ascertain if government approvals are needed.”

Lawyers said that the time taken for states to give their approval varies, some reverting in a month, and some up to six months.

“If the property is already owned by a foreigner, it is likely the transaction would require state approval,” Tai said, adding that “conditional contracts” had become an issue only because of the short “window period” before RPGT is reintroduced.

He noted that the RPGT Act had introduced government approvals only in 2006.

Shortly after that, former prime minister Tun Abdullah Ahmad Badawi allowed a blanket exemption on RPGT effective April 2007 to boost the sector, so the issue was not fully explored.

Moreover, the Finance Ministry and Inland Revenue Board had not come up with a clear indication as to how the conditional contracts apply. “There is a bit of a question mark there,” Tai noted.

The government is expected to rake in RM500 million from RPGT next year when the tax is reintroduced at a flat 5 per cent, notwithstanding the holding period.. This is so sad as it hits the first time seller who are upgrading to better quarters.

This tax was supposed to curb speculation. However, its across-the-board application has upset many who have held their properties for a long time — some for decades, some stretching a few generations — as the value of their assets would have greatly appreciated.

Property players have also criticised the government’s reversal in policy after less than three years as inconsistent and a deterrent to foreign investors.

This week, Gerakan — a component party of the ruling federal coalition Barisan Nasional — urged the government to scrap the proposal to reintroduce RPGT as it is “unfair and inappropriate” since it would impinge on all transactions, including those not of a speculative nature. [I think Gerakan is right here.]

“In view of the serious consequences from the tax especially on the middle and low income groups, we appeal to the government to cancel the proposed 5 per cent RPGT under Budget 2010.”

Will the government listen? Not if the 13th General Election is still far off.

Malaysia: Banking on the Private Sector

Apart from pump-priming efforts, Malaysia anticipates the private sector to promote an extra one to two percentage growth in 2010.

Leveraging on this anticipation would be the unveiling of the country’s new economic model in the coming weeks that would apparently help reshape Malaysia’s economic planning and activities.

Since the Asian economic crisis, reduced private sector participation in investing in growth sectors had warranted the government to bear an unprecedented burden in stimulating the economy.

“The private sector will be the backbone of the economy moving forward. We need increased private sector investments which are now well below levels before 1997-98,” said PM Najib, who is also Finance Minister.

More specifically, the Prime Minister asked the manufacturing sector to improve innovation and actively explore opportunities to develop new product and service areas.

“The manufacturing sector must alter its game plan in order to stay competitive, both regionally and globally. It will remain vital to Malaysia’s economy and holds the key for our nation’s march to ever-higher levels of prosperity,” he said.

In the manufacturing industries, Najib said continued investments in innovation, productivity and information technology would help the country break free from its traditional low-wage business models.

As manufacturing would continue to be the foundation to Malaysia’s economy, it must be aligned with the evolving business environment, he added.

In addition to investments in higher technology and value-added products, the Prime Minister said a highly-skilled workforce proficient in new technologies must also be created.

For this, he asked the private sector to ensure the workforce received continued on-the-job training to help them evolve with increasing demands for the global workplace.

“The growth and development of the manufacturing sector are critical to Malaysia’s future success and prosperity, and we want the sector to be able to thrive in the global marketplace,” he said.

The public sector would play its role in supporting the private sector by focusing on regulatory reforms to eliminate gaps and overlaps, more transparency and improved coordination among relevant government agencies.

Is this mere rhetoric again?

Malaysia: Ingenious Capital Flight

It has been going on since the government's clampdown on money transfer after the 1997 financial debacle.Now this has come to pass.

The Straits Times of Singapore reported that Bank Negara Malaysia has begun cracking down on some money changers to prevent more capital flight from taking place under its very nose. Bankers estimated this could be in excess of several billion US dollars each year.

Since early this year, BNM has closed down 49 money-changing firms after raids by its enforcement division revealed that many operators were illegally remitting funds to countries such as Singapore, the United Kingdom and the United States.

The crackdown has attracted fresh public scrutiny in recent weeks following claims by the country's opposition that several high-profile Malaysians, including a Chief Minister of a state had engaged the services of money changers to transfer vast amounts of money overseas.

Foreign exchange rules stipulate that the transfer of funds overseas can be carried out only by licensed financial institutions, such as banks.

But money changers in Malaysia, which like in many Asian cities are run by people from the Indian sub-continent, have long been a popular conduit because they offer foreign exchange rates that are far more competitive as well as low fees to carry out the fund transfers.

There is also another compelling reason.

“Money changers are used mainly because the money is illicit funds from corruption and activities such as drug trafficking and prostitution,” said Datuk Paul Low, president of Transparency International's Malaysian chapter.

The sums involved are huge. Bankers and government officials said that a single money changer can boast a turnover of roughly RM300 million each month, or about RM3.6 billion annually.

A Bank Negara official said that the crackdown was part of an “ongoing surveillance” of the activities of the country's 875 licensed money changers.

She declined to comment on whether action would be taken against those engaging the services of money changers.

Economists said the central bank's move to shutter the businesses of 49 licensed money changers underscores a deeper malaise afflicting the economy: the flight of capital.

Money leaving the country comes from several sources.

Apart from Malaysians building a retirement nest egg or squirrelling money away to pay for their children's education, bankers and money changers said a bulk of the money leaving the country comprises funds from the country's so-called black economy, which thrives on kickbacks from large public sector contracts and illegal businesses such as drug trafficking and prostitution.

Last month, Transparency International said that Malaysia fell to No. 56, from No. 47 last year, in a league table of 180 countries surveyed around the world, and that graft had hit “alarming” levels.

Bankers also said the growing number of capital flight cases is a reflection of the unease over Malaysia's political and economic future, stemming from rising crime rates and the country's increasingly chaotic politics.

“At one time, the main people taking out money were the Chinese. But these days, a large number of them are the rich Malays,” said one money changer in Kuala Lumpur, who asked not to be named.

Sad but true,smart money leaves for the distant shores when it can no longer find safe haven in a country.

The ATM for Men

I post this in jest. Have fun.

Legoland Iskandar Starts Construction

Legoland's US$200 million theme park at Iskandar has been laid its first brick to signify the beginning of construction. Sited on a 26-hectare piece of land, Legoland Malaysia Resort, which will open its doors in 2012, is the centrepiece of the Medini North, a lifestyle development that will feature a retail mall, themed and business hotels, and office and residential spaces.

Business Times Singapore reports that Iskandar Investment is hopeful that the building of this theme park will catalyze more global partners to come into the Iskandar region to expedite its transformation into a“thriving new metropolis in Asia”.

A year on since the deal was first inked to build Legoland Malaysia, Legoland Development announced that the construction phase was now in full swing to bring the roller coasters, shows and more than 15,000 Lego models scattered around the theme park to life.

Legoland Malaysia, which is about a 15-minute drive from the Malaysian immigration checkpoint at the Second Link which leads to Tuas, will have a “Miniland” featuring miniature Lego replicas of famous buildings and structures across Asia, including the Petronas Twin Towers, the tallest twin buildings in the world.

Legoland Malaysia is managed by Merlin Entertainments, which operates well-known attractions such as the London Eye observation wheel in England and Madame Tussauds museums.

Singapore's Universal Studios theme park at the Resorts World integrated resort which will open next year will cater more for young adults, while Johor’s two parks the Family Indoor Theme Park in Puteri Harbour and Legoland are targeted at children below the age of 12.

Legoland Malaysia joins its sister parks in Denmark, the United States, Germany and the United Kingdom. Those four parks collectively draw some six million visitors a year. There are also plans to open a Legoland in Dubai by 2015.

Will these Malaysian theme parks have the threshold Malaysian population and the disposable income size to be sustainable? What is the percentage of spill-over effects that they can liberally garner from the Singapore tourist industry?

Only time will tell whether these are good investments or white elephants.

Freedom: Bank of America Corp

I think more banks are paying back their bail out money. This is crucial to have a free hand in what they intend to do without the need to get approval from Federal authorities.

Read this Reuters' report.

'Bank of America Corp today [3 Dec 2009]said it would repay US$45 billion (RM153 billion) of taxpayer bailout funds [Troubled Asset Relief Programme (TARP)]in the next few days, a move that could free the top US lender from pay curbs as it looks to hire a new CEO. The downside will be its vulnerability to further economic shocks.

The announcement is also a shot in the arm for the US Treasury, which has been under fire for the hundreds of billions in taxpayer dollars it has shelled out to corporate America during the financial crisis.

Bank observers said Bank of America's repayment may be the first in a wave of TARP repayments by major US banks that have yet to repay the government bailout funds, including Citigroup Inc and Wells Fargo & Co.

"Once the dam is broken, my bet is we're going to see other institutions announce total or partial repayment plans," said Tony Plath, banking professor at University of North Carolina- Charlotte.

The US government injected US$45 billion into Citigroup, while Wells Fargo received US$25 billion.

A US Treasury official called the repayment a step in the right direction, adding that replacing Treasury investments with private capital would provide a boost to confidence.

The announcement comes as the bank has bristled under US pay czar Kenneth Feinberg's curbs on senior management compensation. It has repeatedly expressed its interest in repaying the funds as soon as possible.

"I didn't think they were in any position to repay TARP. I was looking for that in another 12 to 18 months," said Bill Fitzpatrick, an analyst at Optique Capital Management in Milwaukee. "Given all the risks that are still embedded in the economy, it's more prudent to beef up your capital levels."

Under the terms reached with the Treasury, the bank will sell up to US$18.8 billion in securities that will convert into common stock once shareholders approve an increase in the bank's shares. The remainder of the US$45 billion would be repaid through US$26.2 billion in cash.

The bank is repurchasing all of its outstanding shares under the TARP programme, but not repurchasing the warrants.

"Our intention has always been to exit the exceptional assistance," said Bob Stickler, a company spokesman. "Our goal was to meet our obligation to taxpayers. We see this as a victory for the government's programme, as it did what it was intended to do."'

I think this is an early indicator that all is going to be well with the more well managed banks in America and may well herald the return of more confidence to Wall Street.

Respect the Rights of Witnesses

Much has been spoken and much have been written about the recent Malaysian High Court’s recent ruling that the Malaysian Anti-Corruption Commission (MACC)can only question witnesses between 8.30am and 5.30pm.

After much public discussion, many of them tangential in nature,the Malaysian Bar stepped in to give its learned view. This is the position of the Bar Council's stand on the issue.

Witnesses who aid law enforcement agencies in investigations should surely, at a minimum, be accorded the same protection and rights as accused persons.

However, there is a fundamental distinction between witnesses and accused persons, which must be highlighted. Accused persons can be remanded because they are implicated in the alleged offense, whereas witnesses are integral in assisting the investigation and prosecution process.

It is essential that witnesses, whose testimonies are important in court hearings, not face any actual or perceived intimidation, pressure or coercion during the interrogation process.

The High Court decision relates to the MAAC’s practice of compelling witnesses to appear and be questioned, including for long periods of time that stretch beyond office hours, with no option for them to decline.

The Bar reiterate that if witnesses volunteer to be interrogated outside of office hours, and attend the interview with their legal counsel, any allegation of impropriety or abuse would be immediately dispelled.

Such respect for the Constitutionally-enshrined right to counsel of one’s choice, and adherence to the High Court ruling, will, in the long run, promote transparency and accountability.

Furthermore, witnesses would be encouraged to be forthcoming in assisting with investigations, as they would have no reason to fear the interrogation process or dread being unduly detained for long and unreasonable hours.

We salute the Bar Council for being forthright with its stand.