PKFZ: "Why Must I Pay?"

Amidst all the hoo-ha over various people being charged on falsifying hundreds of million ringgit claims with regards to the Port Klang Free Zone project, I've asked the Government to stop payment to the developer, Kuala Dimensi (KDSB) and its bondholders until it has been proven that KDSB has carried out the work.

It was hence quite amusing to read the response of KDSB CEO, Datuk Seri Tiong King Sing in the Malay Mail today ;-)

WHY MUST I PAY?
KHARLEEZ ZUBIN
Tuesday, December 15th, 2009 10:57:00

KUALA LUMPUR: Mired in controversy, Kuala Dimensi Sdn Bhd (KDSB) CEO Datuk Seri Tiong King Sing has bluntly refused to settle outstanding loans to bondholers in the Port Klang Free Zone (PKFZ).

"Why should I settle outstanding loans? We have completed what was required of us and handed over the project to the port authorities.

It is not my fault if they didn’t move on,” he told The Malay Mail at the Parliament lobby yesterday.

“We are contractors and if there was a delay in handing over the project, they should have terminated our contract or sent us warnings for the delay.”

PJ Utara Member of Parliament Tony Pua was the latest to question why the government had given a guarantee to settle KDSB’s debt obligations when there was a possibility that KDSB might be proven to have failed in performing a satisfactory job on PKFZ and therefore, should not be paid in full.

[...]

On claims that the government should not pay KDSB or its bondholders while waiting for the RM1.4 billion dispute to be settled in court, Tiong, who is the MP for Bintulu, said:

“That’s good, but who is going to pay the interest? Delay means interest and KDSB cannot be made to pay.”

On August 26, 2009, the Port Klang Authority (PKA) had sued KDSB for wrongful or excess claims amounting to RM1.4 billion.

[...]

The Opposition had argued that if the court decides Kuala Dimensi had made wrongful or excessive claims, then the outstanding loans due to the bondholders must be settled by the owners, since they borrowed the money, not the Malaysian government.

For the full text of the article, check it out here.

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Water Talks: Don't Blame Selangor Government

In an interview with The Star Bizweek on Saturday, Pengurusan Aset Air Berhad (PAAB) CEO, Ahmad Faizal Abdul Rahman blamed the Selangor Government for the delays in the state's water consolidation exercise where talks have exceeded a year. It was highlighted that “long after being adamant about leading such talks, the Selangor government recently threw in the towel” and “requested that PAAB to step in to lead the talks.”

Firstly, it should be noted that the State Government has not requested that PAAB step in to lead the talks.

Secondly, the failure of the water talks to date is not due to the Selangor Governnment. Instead it is the Federal Government's insistence that SYABAS remains the concessionaire for water distribution in the state. During the negotiations, the state government had even accepted a compromise proposal where SYABAS will remain 51% majority shareholder of the during the negotiations with the conditions that an independent professional management as well as equal board representation. However, even these highly reasonable terms were refused by both SYABAS and the Federal Government.

The fact that the Federal Government had been secretly negotiating a RM320 million interest free, unsecured and backloaded 20-year loan facility to SYABAS serves only to prove the Federal Government's bad faith in the entire water talks, for while the state government is negotiating hard the terms of the new concession, the Federal Government is offering SYABAS a way out for its major cashflow problems which disincentivises the need for SYABAS to deal with the state government.

The absolute lack of commitment on the part of the Federal Government is clear when the Minister refuses to use its powers to cajole SYABAS to the negotiating table with the State Government. Now that PAAB is conducting the negotiations however, Faizal can now claim during the interview that “there's not much room for negotiations”, for the concessionaires have to “take it or face arm-twisting with a fistful of the law. Section 114 of WSIA gives power to the Energy, Green Technology and Water Minister to force water players to hand over the assets for the sake of 'national interest'”.

Faizal has also admitted to favouring the concessionaires with terms such as “certain things previously not recognised as assets are now recognised as assets. Otherwise its not palatable to the concessionaires.” In addition, he also disclosed that PAAB will be taking into account the fact that the concessionaires “liabilities are much higher than the tangible assets”, which means the rakyat will have to bear the liabilities of these concessionaires as part of the taking over of water assets.

The process undertaken by PAAB as explained by Faizal is not a consolidation or restructuring of the state's fragmented water industry with multiple players. All PAAB is doing is to purchase the 4 concessionaires assets at high prices but will continue to issue operating and maintenance license to them. In essence, PAAB is only bailing out of the troubled concessionaires while the fragmented industry remains.

The Selangor state government has definitely not thrown in the towel, for it is our responsibility to ensure that the rights of the rakyat are fully protected and not allow them to be taken advantaged of by the concessionaires. We will, over the next few weeks, take all necessary actions to ensure that our goals for the people of Selangor are achieved.

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The Oil Curse Strikes

I wrote a fairly extensive piece more than 2 years ago in June 2007, which was published in Aliran (after being rejected by The New Straits Times), and blogged here (Part I and Part II), on "Oil & Gas Windfall: Boon or Bane?" At that point in time, the Government wasn't at all concerned because the oil prices were hitting the roof, peaking at US$150 per barrel in July 2008. Nobody then thought that the party will soon turn into a crisis.

Now that the oil prices have declined by some 50% today, or as low as 20% of its peak just a few months ago, the chickens have come home to roost. Previously ignorant and complacent, the Barisan Nasional government is now hard up for cash, as its revenues from the oil and gas sector gets severely hit. The solution as the Prime Minister and Finance Minister, Datuk Seri Najib Abdul Razak says, we need to make up for the shortfall by taxing the rakyat more. Hence our 2010 Budget is all about taxes, the new credit card tax, the real estate property gains tax and the upcoming goods and services tax.

UMNO veteran, former finance minister and chairman of Petronas, Tengku Razaleigh Hamzah spoke his mind today, that "the country has squandered its oil wealth".

KUALA LUMPUR, Dec 12 — Petronas founder and former Finance Minister Tengku Razaleigh Hamzah said today that Malaysia had squandered its oil wealth and had become an “oil cursed” country dependent on it like a narcotic for quick fixes.

In his most scathing remarks yet about the management of the country's oil reserves and the economy, Tengku Razaleigh said oil money had been used as "a giant slush fund that has propped up authoritarian rule, eroded constitutional democracy and corrupted our entire political and business elite."

"Our oil receipts, instead of being applied in the manner we planned upon the formation of Petronas, that is, according to its original developmental purpose, became a fund for the whims and fancy of whoever ran the country, without any accountability.

"The oil that was meant to spur our transition to a more humane, educated society has instead become a narcotic that provides economic quick fixes and hollow symbols such as the Petronas Towers. Our oil wealth was meant to help us foster Malaysians capable of building the Twin Towers than hire foreigners to build them, a practice in which we preceded Dubai. I would rather have good government than grand government buildings filled with a demoralised civil service," he said in his speech at the Young Corporate Malaysians Summit here today.

He said that when he started the national oil company in 1974, he did not foresee that he would one day wish that the country had not discovered oil.

The Umno veteran said that Malaysians were no longer productive and no longer used their ingenuity to improve themselves to take the leap forward...

For the full article, visit The Malaysian Insider or Malaysiakini.com.

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LRT Extension Feedback

The following is the statement from Moaz Ahmad of TRANSIT with regards to the planned extension of the LRT lines from Kelana Jaya to Putra Heights and Sri Petaling.

The Association for the Improvement of Mass-Transit will submit a copy of their feedback on the proposed Railways Scheme for the extension of the Ampang LRT Line (LRT Sistem 1) and Kelana Jaya LRT Line (LRT Sistem 2) from their current terminals to a new integrated terminal in Putra Heights.

We hope that this feedback will convey to the Director General of Railways and the Minister of Transport that TRANSIT is extremely concerned about the planning of public transport in the Klang Valley.

TRANSIT raises its concern about the current language of the Railways Act 1991, which treats all forms of railways as the same. TRANSIT believes that there are significant differences between an urban mass-transit railway and a rural or intercity railway and that the Railways Act 1991 or future Public Land Transport Act 2010 (SPAD Act) should identify and define these differences.

In our submission, TRANSIT also questions why the proposed railways scheme is different from the Selangor Structural Plan (2006).

Although TRANSIT recognizes that the Federal government has the responsibility to regulate transport (including public transport), the State Governments have a significant role to play with respect to the planning and land use associated with that transport.

TRANSIT also questions whether a complete public transport planning study and economic feasibility study were conducted for these proposed lines. If these studies were conducted, why where they not made public?

We are aware that a survey of residents was conducted in 2007 and wish to know why the results were not made public.

TRANSIT also believes that the language of the Railways Act 1991 does encourage the Director General of Railways and the Minister of Transport to direct the Railway company to submit further information to them or to the public regarding the railways scheme.

TRANSIT asks the Director General of Railways and the Minister of Transport to play a more proactive role in the planning of public transport and Railways Schemes by directing their officers to improve the structure of the public display and directing Railway Companies to make public all studies related the planning and analysis of their Railway Schemes.

Sincerely

Moaz Yusuf Ahmad
on behalf of TRANSIT


TRANSIT

The Association for the Improvement of Mass-Transit (TRANSIT) is a public transport advocacy group that represents the voice of the public transport user, a stakeholder and shareholder in public transport who is often ignored by the other stakeholders (the operators, civil servants and wakil rakyat). TRANSIT aims to be a source of knowledge about public transport, and a watchdog for public transport service.

Prasarana

Syarikat Prasarana Negara Berhad is a company 100% owned by Ministry of Finance Inc. Prasarana owns the assets of public transport lines LRT Sistem 1, 2, 3 as well as buses. LRT Sistem 1 and 2 and a number of these buses are operated by RapidKL Sdn. Bhd. under the brand RapidKL, while other buses are operated by RapidPenang Sdn. Bhd. under the brand RapidPenang. LRT Sistem 3 is operated by KL Starrail Sdn. Bhd. RapidKL, RapidPenang and KL Starrail are all subsidiaries of Prasarana.

Railway Scheme

The Railway Scheme is the proposed route for the construction or extension of a Railway Line (in this case, the extension of LRT Sistem 1 and LRT Sistem 2), as well as the detailed information submitted to the Director General, Department of Railways as mandated under Section 7 and Section 8 of the Railways Act 1991.

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Federal Government to Bail-Out SYABAS!

Over the past 9 months, the Selangor State Government and the Federal Government has attempted to iron out the differences over the water industry consolidation exercise in Selangor in an amicable fashion, behind closed doors. Unfortunately, despite the goodwill shown, the Federal Government had appeared adamant about granting the water concession license to Syarikat Bekalan Air Selangor Sdn Bhd (SYABAS), which is a private company owned and managed by Puncak Niaga Holdings Bhd.

It now appears that the water talks between the state and federal government is completely futile for not only is the Federal Government insistent on awarding the license to Syabas, it has all these while been planning a bailout of Syabas which is suffering from poor management and major cashflow shortages.

In a press statement issued by Malaysia Rating Corporation (MARC) yesterday, it has affirmed’s (SYABAS) RM3.0 billion Bai Bithaman Ajil Commercial Papers/Medium Term Notes Programme (BBA CP/MTN) ratings of MARC-1/AA-.

Among the rationale for maintaining the AA- rating despite the cashflow problems faced by Syabas as well as the mounting number of legals suits for outstanding debt by its creditors, MARC said that

Mitigating the increased event risk faced by noteholders and pressure on SYABAS’ credit profile in the near-term is a 20-year back-loaded interest free unsecured RM320.8 million loan which SYABAS expects to receive from the federal government by the end of the year. The proceeds of the interest-free loan will be used to partially defray the past due amounts to the WTP operators.

MARC was informed by SYABAS that it has reached the final stages of concluding the loan agreement and drawdown is expected by end-December 2009.

As part of this “back-loaded interest free unsecured RM320.8 million loan”, SYABAS will only need to commence repayment only from 2014 with amounts less than RM5 million until 2025, with the overwhelming remainder payable only from 2026 onwards! And as the statement implies, the loan is completely interest-free and requires absolutely no collateral from Syabas.

This is a shocking development and we must ask the Federal Government why it is using tax-payer's monies to provide life support to a private company, and at such lucrative terms? Even when the Government forked out RM4.6 billion in soft loans to Port Klang Free Zone which is a 100% government owned entity, a 4% interest rate was charged. And when governments all over the world undertook “bail-out” exercises to rescue private companies such as banks and motor companies, the tax-payers' monies were utilised under very strict terms. In fact, the Government of United States and United Kingdom became the largest, if not majority shareholders of these companies such as Citibank, General Motors, Crysler and Royal Bank of Scotland.

It is only in Malaysia where the Government is so generous to private concessionaires where “back-loaded, interest free and unsecured” loans amount to hundreds of millions are possible.

The Selangor state government has submitted an extremely comprehensive proposal to take over and restructure the water industry in the state without requiring any special sweetheart deals involving the tax-payers' monies from the Federal Government. In fact, two other key water industry players, SPLASH and ABASS had already agreed to the offers by the Selangor State Government before the overall deal collapse due to non-cooperation from SYABAS and Puncak Niaga, and the clear lack of support from the Federal Government.

The fact that SYABAS is facing critical cashflow problems reflects the complete failure of its privatised management, and should serve as the key reason why the state government should be allowed to take over these concessionaires and be given the opportunity to consolidate and restructure the fragmented and inefficient industry.

In providing a lifeline to SYABAS at such mind-boggling terms, the Federal Government is only doing it at the expense of the Rakyat. We will like to make a last ditch appeal to the Prime Minister and Finance Minister, Datuk Seri Najib Abdul Razak to intervene to revive the water restructuring exercise under the state government to ensure that the rakyat's interest are fully protect. There is no point in the Government going to the public to justify all sorts of higher taxes but at the same time, fail to utilise the Rakyat's monies in the must responsible and accountable manner.

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Petronas Profit Dips, Rakyat To Bear The Burden

As Petronas profits dip 50.7%, will the Rakyat will have to pay for the Government's past excesses?

Petronas’ net profit before tax for April-September 2009 stood at RM31.2 billion versus RM63.3 billion in the same period a year ago, or a sharp decline of 50.7%. At the same time, revenues dropped 37.5 per cent to RM98.2 billion from RM157.2 billion ringgit.

The drop in profits is largely due to the decline in crude oil price during the period ranged between a low of US$50 in April to a high of US$75 achieved in August, averaging in the region of US$67. With the global crude oil price languishing around US$75 since September, it does not appear that the October 2009 to March 2010 period will improve significantly.

Therefore, the estimated annual profit expected from Petronas for financial year ending March 2010 will be in the region of RM 65 billion as compared to RM89 billion, or an overall decline of RM24 billion.

As a result, the sharp drop in Petronas profits will add further pressure onto the Government's revenue source for the 2010 financial budget as it's original estimates of RM56 billion collection from the petroleum sector may not materialise in full. If the Government is unable to either find additional revenue or reduce its expenditure, then the budget deficit for 2010 is expected to increase significantly above the projected 5.6%.

It is hence disappointing that despite the Government having collected bumper revenues amounting to RM217 billion from Petronas over the past 4 years (2006-2009) as a direct result of escalating oil prices, it did not have the simple foresight of putting aside any of these income for future use when the oil price declines. In fact, not only was every cent of the oil and gas windfall revenue over the past decade has been spent in full, the Government incurred additional debts on top.

As a result of the past excesses and wastages through irresponsible expenditure, corruption, incompetence and mismanagement, the Government is now caught with declining revenues and is finding it difficult to pay for its operational expenses, including servicing its rapidly increasing debt obligations.

In the light of the above, we call upon the Government not to take the easy way out to tax the rakyat more to make up for the revenue shortfalls by implementing measures such as the credit card tax, the real property gains tax and the proposed goods and services tax.

Instead, the Government to take this valuable crisis opportunity to restructure the large and bureaucratic Government machinery to be more lean and efficient. Before the Government even consider taxing the rakyat more, it should firstly implement fully transparent and accountable best practices for the implementation of Government procurement and projects.

In addition, the Government must also seek to implement additional measures to raise revenue from other sources which does not affect the livelihood of the masses, such as implementing an open auction system for the Approved Permits issued to import luxury foreign cars which can raise more than RM2 billion a year.

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We Need Hospitals For Our Hospitals

Are our hospitals stricken with cancer as we continue to struggle to complete their construction on time and on schedule?

Malaysiakini yesterday revealed once again, another botched up public infrastructure project by the Malaysian government. The Shah Alam Hospital was originally budgeted by the then Selangor state government in 2007 at approximately RM300 million (The Star, 15/03/07), was eventually awarded for RM482 million, or 60.7% above its original budget.

The project was awarded to Sunshine Fleet Sdn Bhd which had absolutely no experience in construction of buildings, much less the specialised skills required for a public hospital. The construction and commissioning of the hospital project was however fully sub-contracted to financially distressed Isyoda Corp Bhd in November 2007.

Isyoda was however unable to complete, and withdrew from the project and the company filed winding up proceedings against Sunshine Fleet before the case was settled out of court in May 2009. The project was subsequently awarded to another fairly new company, GM Healthcare Sdn Bhd. As reported by Malaysiakini:

However, it may be sailing into troubled waters, just as Isyoda did. GMH is also beginning to suffer from the huge amounts of advances and expenses demanded by the turnkey contractor, Sunshine Fleet. Sources close to the project said such appropriations of funds for “expenses” other than construction costs may “have an adverse economic effect on the project”.

The question that the public is asking is whether the project will complete on time by November 2010 next year, and what additional cost is expected to be incurred by the Government to ensure that the hospital gets completed. In addition, what assurance does the rakyat have that it will not be another hospital project which is “completed” but becomes saddled with poor workmanship resulting in subsequent years of delay?

Malaysia has already got a history of more than half a dozen of botched up hospital projects, and it appears that the Shah Alam Hospital will become another name on the long list which includes:

• Kota Kinabalu’s Queen Elizabeth Hospital (October 2008)
  
  Poor maintenance and planning led to infrastructure failure. ICU and surgical units were shut down. Several hundred patients were transferred out after three blocks were declared unsafe by engineers. It is learnt that the QEH management had reported the hospital’s deteriorating conditions as early as 2000. The Health Ministry was supposed to carry out maintenance and repair work on the hospital from time to time through its concession company, Syarikat Faber Mediserve Sdn Bhd.

• Pekan Hospital, Pahang (June 2007)
  
  Scheduled for completion in 2003, the hospital was finally handed over to MOH in March 2007. Among defects found were leaking pipes, collapsed ceilings and problems with the main water tank.
  
  
• Sultan Ismail Hospital, Johor (April 2007)
  
  In September 2004, the hospital which cost RM550 million was shut down for 17 months due to a fungus problem. 2 years later, large portions of the ceiling had to be removed due to structural inconsistencies. The company responsible for maintenance work at the hospital: Pantai Medivest.
  
  
• Sultanah Bahiyah Hospital, Alor Star, Kedah (March 2007)
  
  Built at a cost of RM550 million, the hospital was opened 4 years after its scheduled completion date. Health Minister, Chua Soi Lek admitted that the contractors lacked expertise.
  
  
• Sultan Abdul Halim Hospital, Sungai Petani (February 2007)
  
  Overflowing human faeces from a toilet forced temporary closure of an ICU unit at the state of the art hospital which cost RM450 million to build. A smilar leakage had occured in the hospital caferia due to a defective sewerage pipe. There were also collapse ceilings.
  
  
• Ampang Hospital, Kuala Lumpur (March 2007)
  
  Scheduled for completion in 2004, the hospital only opened in 2007. The pediatric ward was fungus ridden, the ceiling were infested with fungi and the sewage pipes were leaking. Health Minister, Chua Soi Lek, said that glitches were to be expected in new buildings.

Despite the long history of such botched up projects, the Malaysian government has not learned its lessons and today, continues to award public infrastructure construction and building contracts of hospitals via direct negotiations, often to unknown or inexperienced companies.

It is completely unacceptable that the Government continues to benefit connected and influential individuals by awarding direct contracts despite the extensive list of failures, resulting in the losses amounting to billions of ringgit. What is worse is that the Government is now expecting the rakyat to pay for its follies by introducing various new and higher taxes such as the credit card tax, the real estate property gains tax and the soon to be introduced Goods and Services Tax.

I raised the Shah Alam hospital project in the Public Accounts Committee (PAC) Meeting yesterday to request that this on-going project gets thoroughly investigated before it becomes terminally ill. I received tentative agreement from the committee that the National Audit Department will be directed to conduct the initial investigations, and will report to the PAC on its findings for deliberation.

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Increase Productivity Instead of Raising GST

Above is a clip from my press conference in Parliament this morning in response to the Prime Minister, Datuk Seri Najib Abdul Razak's comments that the GST will not burden the middle and lower income rakyat. I thought of course, the comment was nonsensical. ;-)

You can also read the full report on Malaysiakini or The Edge.

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LAST CALL: DAP PJ Annual Fund Raising Dinner 2009

Come join us in our annual fund-raising dinner (halal) to support the DAP Petaling Jaya Utara Service Centre operations organised by the DAP Damansara Branch.

The speakers for the evening will include:

• Tan Sri Khalid Ibrahim, Menteri Besar Selangor
• Tony Pua, MP Petaling Jaya Utara & DAP National Publicity Secretary
• Lau Weng San, ADUN Kg Tunku & DAP Selangor State Secretary
• Hannah Yeoh, ADUN Subang Jaya & DAP Selangor State Treasurer
• Dr Cheah Wing Yin, ADUN Damansara Utama*
• Khalid Samad, PAS MP Shah Alam

* to be confirmed

The price of the dinner tickets are as follows:

• RM600 per table or RM60 pax
• VIP tables are also available for RM1,500 per table

Please contact Ms Carmen Leong @ leongooikuan@gmail.com or 016-2208867 to book your tickets!

For those who are not able to make the dinner, donations are also very much welcome ;-). Cheques should be written to "DAP Damansara Branch" or cash can be deposited at DAP Damansara Maybank account: 5141 9634 2008. Credit card payment is also available upon request.

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Is the 2nd Finance Minister for Real?

The Second Finance Minister gave a keynote speech at the National Economic Outlook Conference 2010-2011 organised by the Malaysian Institute of Economic Research on the 1st December, which must have shaken the audience to the core, not because the content of his speech had anything new or shocking, but because it was the first time a Finance Minister had stated the obvious which all Malaysians knew about, with regards to the country's economy.

According to the AFP report, Datuk Seri Ahmad Husni Hanadzlah said:

"Malaysia is trapped in a low-value-added, low-wage and low-productivity structure," Second Finance Minister Ahmad Husni Hanadzlah (left) told an economic outlook conference. Among its peers China, India, Vietnam, Indonesia, Philippines and Thailand, Malaysia's economic growth over the past three years was second-lowest, he said.

"Our economy has been stagnating in the last decade. We have lost our competitive edge to remain as the leader of the pack in many sectors of the economy. Our private investment has been steadily in decline... While Singapore and Korea's nominal per capita GDP grew within the last three decades by 9 and 12 times respectively, ours grew only by a factor of four."

In a withering assessment, Ahmad Husni said the services sector is underdeveloped, private investment is half the levels before the 1997-98 Asian crisis, and the manufacturing sector is suffering from lack of investment.

...He called for sweeping measures including an emphasis on meritocracy and ensuring all Malaysians are given "equal opportunity to participate in the economy".

"We must also consider the gradual dismantling of our open-ended protection of specific sectors and industries which have introduced a climate of complacency and artificial levels of supply... The long-term success of the nation's economy must take precedence over the short term interests of a few protected groups."

This is a speech which sounds as if it has been lifted word for word of the blogs of the Pakatan Rakyat leaders! In fact we have been saying the same over the past decade and we are ecstatic that a Finance Minister is finally listening for it is better late than never.

However, the “earth-shaking” speech will be a sheer waste of time and effort if it is not put into real concrete actions. We would like to call upon the Minister to move a ministerial statement on the country's real state of the economy and to allow for debate in the Parliament so that both sides of the house can unite for once on the urgent “wide-ranging reforms” needed to restart the country's engine of economic growth.

This is particularly urgent in the light of recent measures by the Government which runs completely counter to what the 2nd Finance Minister has raised such as the direct award of the mega-Matrade Exhibition and Convention Centre to Naza TTDI which serves the “short term interests of a few protected groups” and the complete lack of competition in the other projects awarded by the Government resulting in the continued decline in competitiveness.

Hence we hope that the Cabinet Ministers will no longer sing unbelievable and unrealistic praises of the Malaysia's economy in Parliament when responding to queries from its members. Instead they should all discard the knee-jerk denial syndrome mentality to ensure an honest assessment which is critical to adopting the right measures to heal the malaise in our economy.

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GST: First Blood

I issued my first press statement opposing the proposed Goods and Services Tax today. This will probably be the first of the many to come, and should we not be successful in pressing the Government to withdraw the bill, then, it will be a nationwide campaign all the way to the next General Elections! Prior to the recent announcements, I've already debated this issue in Parliament

Second Finance Minister, Datuk Seri Ahmad Husni Hanazlah has revealed yesterday that he expects the new law on the GST to be passed in March next year, and will be fully implemented by January 2012. He had earlier mentioned that he expects the GST rate to be set at 4%.

We would like to point out that while there are some theoretically sound reasons for the implementation of a GST system in Malaysia, it is totally inappropriate for the Government to impose GST any time in the near future as at this point of time, it will only serve as a heavy burden to the rakyat at large.

We would like to outline here 3 pre-conditions before a GST system can be imposed in Malaysia:

1.Malaysia must first achieve the “high income” status bandied about by the Prime Minister before imposing GST.

Today, out of a population of 27 million, there are in effect only 1.8 million tax-payers who pays any income tax, or only 6.7% of the population. Even if we were to take into account only the 12 million working population, it is only 15% of them who have pay any taxes. The 85% who don't pay are those who actually don't qualify to pay any taxes because their income is too low. However, with the implementation of GST, every single one of them whether they are earning RM500 a month or RM1,500 a month or even RM2,500 a month, who don't current pay any taxes, will be forced to bear the heavy burden of the GST.

Therefore, it is only fair that the income levels of the average Malaysian is raised to a level where the overwhelming majority of working Malaysians are already taxable before the switch is made to a GST or indirect taxation system.

2.The Government must get rid of all “hidden taxes” in our daily goods and services first before any new tax on such services are imposed

The rakyat are already heavily burdened by “hidden taxes” payable to Barisan Nasional (BN) crony concession companies such as the toll on the highways, or the huge subsidies to the Independent Power Producers (IPPs) as well as the high water tariffs to the privatised water concessionaires due to the lob-sided contracts signed by the Government with these parties. These “hidden taxes” are paid daily to these crony companies which amounts to billions of ringgit a year enabling them to make astronomical profits annually.

Hence until the BN Government demonstrates the political will to restructure these concessions to ease the sufferings of the man on the street, imposing the GST will only rub salt to the would of the people for we will then have to not only pay for high toll, electricity and water rates, we will have to pay GST on top of them!

The BN Government must demonstrate that it does indeed believe in its slogan of “people first”, and not in reality, “crony concessionaires first”.

3.The Government must exhaust all avenues of raising funds and ensure that maximum value is extracted from all Government assets before any attempt to raise additional taxes from the rakyat.

For example:

1. The Government has refused to openly auction the 30,000 to 60,000 approved permits (APs) issued annually to private connected companies to import foreign vehicles which can in itself raise up to RM1.8 billion per annum. In contrast, the Second Finance Minister claimed that the new GST will only raise approximately RM1 billion per annum.
   
   
2. The Government has refused to conduct open tenders for its privatisation exercises to ensure the best quality at the lowest cost such as the building of the new mega-Matrade Convention Centre for RM628 million.
   
   
3. At the same time, it has also refused to openly auction its land for sale but has instead awarded a 62.5 acres piece of prime land at a valuation of RM197 million to a private company, when the independent property consultants have valued it between RM970 million to RM1.5 billion!

With so many other means of raising additional funds and mechanisms to reduce cost for the Government to carry out its programmes, there is absolutely no necessity for the Government to be imposing the GST at this stage, especially in the light of the fact that 85% of the working population will be heavily burdened because their income levels are still low.

We call upon the Prime Minister to fulfil the above conditions first, including his own promise to achieve a “high income” society, before even contemplating to reform the tax system with the implementation of the GST.

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Approved Permits (APs) for Cronies (II)

I wasn't particularly happy with the response provided by the Minister of International Trade and Industry (MITI) to my questions regarding "auctioning" the Approved Permits (APs) to import cars during the committee stage budget debate as blogged earlier.

I argued that if the intent of the 'APs' are to encourage bumiputera participation in the auto sector, then the current system doesn't work either for the award of APs are completely discretionary and are given to a handful of parties who are closely connected to MITI.

Tuan Pua Kiam Wee [Petaling Jaya Utara]: Terima kasih Yang Berhormat Menteri. Terima kasih Tuan Pengerusi. Mengenai dasar AP untuk membantu bumiputera. Perkara tersebut kita tidak bantah, kita tidak kata tidak boleh tetapi untuk membantu kaum bumiputera pun boleh ada lelong terbuka bagi semua peniaga bumiputera untuk mengambil bahagian dalam sektor ini. Untuk membantu bumiputera tidak sepatutnya bermaksud pemberian AP ini adalah mengikut cara yang ditentukan oleh kementerian sahaja, iaitu ikut siapa yang dia hendak beri, kementerian berikan kepada dia.

Boleh juga terbuka kepada semua bumiputera dan kita rasa untuk mempertingkatkan daya persaingan dan juga business bumiputera, kita tidak patut memberikan keuntungan kepada syarikat-syarikat ini melalui satu AP. Mereka tidak patut untung daripada AP tersebut, iaitu harga beli RM10,000 tetapi boleh terus dapat keuntungan RM30,000 daripada AP dan yang patut kita berikan adalah khas dia boleh dapat AP untuk mengimport kereta, tetapi keuntungan anda perlu datang daripada pengimportan kereta dan bukan kerana mendapat AP.

Itu cara kita meningkatkan daya persaingan mereka, kalau tidak mereka hanya dependent daripada RM30,000 yang mereka boleh untung daripada AP sahaja. Kita hendak mereka untung daripada business dan bukan daripada AP yang diberikan oleh kerajaan yang mengehadkan pengimportan kereta. Terima kasih.

Dato' Mustapa Mohamed: Tuan Pengerusi, saya mohon izin untuk wind up perkara ini... Mengenai perkara ini saya ingin memaklumkan seperti saya sebutkan tadi perkara ini amat rumit, sudah 30 tahun menimbulkan pelbagai kontroversi dalam dan luar Dewan, amat memeningkan kepala. Bukan tidak ada satu penyelesaian yang jelas, tetapi yang penting lagi ialah kita harus ada satu process transition.

Itu yang kita buat pada hari ini dan kalau kita buka kepada semua umpamanya seperti mana Yang Berhormat katakan, kita dapati bahawa ada juga kelemahan. Bukan tidak ada kelemahan dan yang akan monopolinya mungkin beberapa orang tertentu juga yang mampu, mungkin dua tiga orang. Dari segi hasil mungkin bagus, tetapi dari segi kalau kita hendak bantu bumiputera mereka yang kaya-raya mungkin merekalah yang dapat semua sekali.

Tuan Pua Kiam Wee [Petaling Jaya Utara]: Akan tetapi sekarang pun bagi empat orang sahaja.

Dato' Mustapa Mohamed: Satu orang sahaja. Jadi dapat kita bantu beberapa ratus orang, dari seorang sahaja dapat manfaat. Jadi cadangan Yang Berhormat, kita sudah kaji semua sekali dan kita rasakan it is not perfect lah dengan sempurna. Ada kelemahan juga Yang Berhormat sebut tadi, tidak semestinya betul dan baik belaka.

I believe that the argument that the Minister put forward that when the APs are openly auctioned, then only the rich will be able to purchase the APs is complete nonsense. Even if you are rich, if you pay an exorbitant price for the AP and is unable to pass the cost ultimately to the consumer, you will still lose you pants in the business! So final bidding price will certainly not be dominated by the so-called "rich" businessmen, but instead by those who are able to maximise efficiency, lower cost and market best, will be able to afford bidding at slightly higher prices and yet make reasonable profits for their business.

Yet, the Government is unwilling to do so, letting these AP hawkers earn billions at the Government's expense. However, when the Government is short of funds, they'll turn to the rakyat to squeeze more blood out of the people with more taxes like the real estate property gains tax, the credit card tax and soon, the goods and services tax.

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Approved Permits (APs) for Cronies (I)

Last week on Wednesday's committee stage debate for the 2010 Budget for the Ministry of International Trade and Industry (MITI), I managed to raise the perennial issue on "Approved Permits", on why there's open tenders for them, which can in turn raise billions annually for the Government.

Terima kasih Tuan Pengerusi. Saya ingin menyentuh Butiran 401000 - Pembangunan Perindustrian di bawah Kementerian, International Trade and Industry. Hanya dua perkara sahaja. Perkara pertama adalah mengenai Approved Permit (AP). Setiap tahun kementerian mengeluarkan 60,000 lebih AP kepada pengimport kereta dan tahun ini, bagi tahun depan, Yang Berhormat Perdana Menteri telah mengemukakan dalam ucapan bajet dia bahawa setiap AP yang dikeluarkan akan dikenakan kos sebanyak RM10,000 setiap AP. Ini adalah satu langkah ke arah yang betul iaitu AP ini tidak patut diberi secara percuma kepada pihak pengimport kereta yang mendapat keuntungan yang lumayan daripada pengimportan kereta dengan AP yang dikuasai oleh mereka.

Akan tetapi, soalan saya ialah kenapa kerajaan langsung tidak mengambil cadangan
untuk melelongkan AP ini sebab harga pasaran AP ini ialah lebih kurang RM40,000 dan boleh jadi lebih tinggi. Kalau RM40,000 boleh dapat dicapai, hasil yang dapat dikutip oleh kerajaan bagi semua AP yang dikeluarkan adalah lebih kurang RM2.4 bilion. Sekarang RM10,000 hanya dapat mengutip RM600 juta. Kenapa kerajaan tidak mengambil langkah untuk melelongkan AP? Ini supaya hasil bagi kerajaan yang amat berkurangan pada tahun depan akan dapat ditingkatkan dengan sebanyak lebih kurang RM1.8 bilion lagi.

Kita hendak kemukakan cukai baru kepada kad kredit, RM500 juta dapat dikutip. Kita hendak kemukakan cukai baru kepada penjualan hartanah, lebih kurang RM500 juta juga boleh dikutip. Kalau kita hapuskan cukai-cukai ini dan kita lelongkan AP sahaja, kita akan dapat hasil yang melebihi RM1.8 bilion, jauh lebih banyak daripada cukai-cukai yang lain. So kita hendak tahu kenapa kerajaan tidak melelongkan AP ini?

Kalau kita nak melelongkan AP ini, sepatutnya kita tidak payah tamatkan polisi AP. Ini sebab kalau 60,000 AP dikeluarkan untuk mengawal pengimportan kereta dan dilelongkan secara terbuka, polisi ini akan dapat diteruskan sebab kita hendak hadkan berapa kereta import boleh masuk. Akan tetapi, kita boleh teruskan polisi ini supaya kerajaan terus mendapat hasil yang mencukupi daripada AP.

So kita harap kerajaan akan mempertimbangkan tentang perkara. Polisi ini pun telah dilaksanakan secara successfully di negara-negara seperti Singapura melalui prinsip COE di mana kalau demand tinggi, harga AP naik, kalau demand rendah, harga AP turun. So kita harap kerajaan dapat mempertimbangkan perkara ini.

And the Minister's Reply was as follows, arguing that the AP policy is temporary, and its specifically to assist bumiputera businessmen to expand in the automotive industry, plus it should not be auctioned to protect those who has invested millions into their showroom etc:

Dato' Mustapa Mohamed: [...] Jadi persoalannya kenapa tidak dilelong, dibuka untuk semua dan kalau begitu mengikut Yang Berhormat Petaling Jaya Utara umpamanya kita boleh teruskan dengan AP ini sampai bila, kita lelong. Itu cadangan Yang Berhormat Petaling Jaya Utara apabila berucap kali yang pertama jam 11.30 pagi tadi.

Jadi untuk ini saya hendak maklumkan bahawa yang pertamanya apa jua dasar, kita harus ada peralihan ataupun transition face, apa jua yang hendak dibuat, Yang Berhormat pun hendak buat sesuatu, kita tidak boleh bribe. Lebih-lebih lagi dasar ini ialah untuk membantu bumiputera dalam bidang motor trade ini, kerana apabila dasar ini diperkenalkan 30 tahun yang lalu memang tidak ada bumiputera dalam motor trade, Yang Berhormat pun tahu semua. Hari ini pun memang tidak ramai lagi. Itu sebabnya dasar AP ini diperkenalkan supaya bilangan bumiputera dalam bidang ini bertambah. Pertama.

Kedua, hasrat kerajaan adalah supaya mereka daripada benefit privilege atau keistimewaan yang diberikan ini dapat mengembangkan perniagaan untuk terlibat dalam bidang-bidang yang lain untuk mempelbagaikan perniagaan mereka. Jadi yang pertama untuk membantu penyertaan bumiputera dan yang keduanya untuk membolehkan mereka ada tapak untuk mempelbagaikan, untuk menceburi bidang-bidang lain. Itu dasarnya.

Jadi itulah yang kita lakukan. Kalau kita buka semua sekarang, kita merasakan ini akan menimbulkan banyak masalah kerana mereka sudah melabur setengahnya RM10 juta. Dasar-dasar sebelum ini yang memberi gambaran seolah-olah ia akan berterusan selama-lamanya, maknanya AP ini akan sampai bila-bila, sampai kiamat kita katakan. Jadi oleh hal yang demikian, maka ada di antara mereka yang telah melabur RM10 juta, RM50 juta. Jadi dengan izin, we’ve got to be fair. Kita harus adil kepada mereka. Itu sebabnya mengambil kira pertimbangan tersebut, kita telah buat keputusan bukan 2020, kita tarik balik lima tahun, 2015.

What do you think? I'll blog on my rebuttal and the subsequent exchange in the next post.

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GST Debate Commences

The debate has begun. Should we or should we not implement the controversial Goods & Services Tax (GST). I've received a comment from a supporter in my earlier post that he supports GST. His arguments are as follows:

1. Currently our Sales Tax is 10%. So, I think anything lower than that is a better deal for the Rakyat.


2. GST is fairer. GST is a consumption tax, people with more income consume more, so they will be taxed more often. People cheats on Income Tax, which explain the low percentage of Rakyat who are tax payer. With GST, those who cheats by not paying or paying less will still have to pay some tax to the Govt, especially when they buy big nice cars and houses.


3. GST is more difficult to cheat than sales tax. Because Sales Tax is so easy to cheat, SMEs who are honest are forced to cheat in order to survive. An example, it's common to find a clause in an open tender that states that the provider has to bear all taxes, and every participant knows that if he doesn't cheat on Sales Tax, he would not have the chance to win the tender. This scenario cannot happen in case of GST, as everyone in the supply and consumption chain has to pay GST, therefore you can't have a clause in the tender to excuse yourself of not paying the GST. With GST, all honest SMEs and providers can now compete fairly and squarely in the market place.


4. As GST is more efficient, the revenue for the Govt will increase. In theory, the Govt will have more money to do all kind of wonderful things for the Rakyat. Now, the track records show that our Govt favors a selected groups of Rakyat and often squanders billions of MYR. Still, I think GST do more goods than harms. Especially when DAP comes into power.

My short response will be as follows:

1. Our sales tax is 5%, and that's only on very selected goods.
   
   
2. I agree with all the theoretical arguments mentioned - (2) and (3). But you have to balance that against the pain you will incur on 85% of the working population who does not pay any income tax at this point of time because their income levels are too low (and not because they are evading taxes)
   
   
3. As for(4), I fully agree that implementing GST will increase govt revenue, that's why BN is doing it, 'cos they've run out of money after wasting it in the last 10-20 years. It has bled Petronas dry and now it wants to bleed the people too.
   
   Lets increase govt revenue by increasing the income of the people (more income, more people will need to pay tax) instead of increasing govt revenue by increase tax rates.

Our BN govt wants to increase tax rates without first increasing the income of the people, and hence it is both unfair and burdensome to the people.

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Deputy Finance Minister was Clueless on GST

I raised my concerns on the controversial Goods & Services Tax (GST) in my committee stage debate on the Ministry of Finance, you can hear it here. The key gist of my argument was that while GST is in theory, more effective and efficient, it has to be noted that in Malaysia only 6.7% of its 27 million population pay any income taxes, or 15% of its working population. This means that any introduction of GST today would mean a substantial burden on 85% of the working population who current do not pay a single cent of tax. They are not pay tax not because they are evading, but because their income is below taxable levels.

Hence my argument was that the GST should be implemented only after a sizeable majority of the working population are able to increase their income to taxable levels. Then, it may be appropriate to switch from a direct taxation mechanism to an indirect one like GST. In essence, until the Prime Minister's stated goal of becoming a "high income" society is achieved, the Government must not implement the GST.

The Minister replied to my concerns very briefly. He said he agreed with my comments, but the Government at this stage is only studying the matter and do not have any intentions at all to implement a GST any time soon. This was on the 18th November 2009 (Wed).

Dato’ Dr. Awang Adek Hussin: [...] Saya ingin menyebut beberapa perkara lain. Salah satunya GST di mana Yang Berhormat Petaling Jaya Utara pun ada enyebutnya. Dia kata sokong dari dasarnya bagus cuma masanya tidak ready lagi. Pertamanya saya ingin menyatakan di sini bahawa kerajaan tidak berhasrat melaksanakan GST dalam masa yang terdekat ini tidak ada. Sekarang ini pada peringkat kajian, mengkaji, memahami dan mencari penyelesaian kepada masalah-masalah yang mungkin timbul.

Apabila kita sudah dapat ke tahap di mana kita yakin bahawa semua ini sudah dibereskan, barulah pengumuman akan dibuat. Akan tetapi, buat masa ini tidak ada lagi sebab ada juga orang dan media pun bertanya adakah kita hendak laksanakan tahun depan kerana perbincangan- perbincangan yang sering disuarakan di dalam Dewan yang mulia? Akan tetapi bagi pihak kerajaan, saya boleh katakan bahawa kita tidak ada perancangan untuk melaksanakan dalam masa yang terdekat.

[...]Cuma, ada seolah-olah tadi di mana saya tidak mahu ada tanggapan bahawa Malaysia tidak ready, negara-negara lain ready melaksanakan kerana mereka ready. Mereka sudah bersedia tetapi tidak bagi Malaysia. Saya cuma mahu katakan, negara-negara yang telah melaksanakan termasuklah negara yang berpendapatan lebih rendah daripada Malaysia dan sudah melaksanakan. Contohnya, Sudan, Indonesia, Thailand, dan Vietnam sudah pun memperkenalkan GST ini. Maknanya, kalau sesuatu yang tidaklah di luar kemampuan kita sekiranya kita sudah bersedia. Akan tetapi, pada peringkat ini kita sedang mengkaji.

And then, guess what, in less than a week, the Prime Minister and Finance Minister, Dato' Seri Najib Abdul Razak announced that the Government will table the GST bill for first reading in the current session of parliament!! The 2nd Finance Minister, Datuk Seri Ahmad Husni Hanadzlah even indicated yesterday, the the GST rate will likely be at 4%!

Obviously, the Deputy Finance Minister, Dr Awang Adek was complete out of the loop and clueless about the GST and should not have been allowed to answer the question! This shows how important the Government treats the Parliament as its highest legislative body.

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