WINDFALL TAX on GLOVES ???
The talk of the town recently is the possible windfall tax on Gloves industry. The following are my personal views .
Is it possible or rationale to that?
It is possible as it can come in few ways.
1. Levy on products .
This is generally difficult to impose as gloves product have many different categories unlike commodities like palm oil and energy.
2. Broad base raise of corporate tax for Glove companies.
This is easier to impose but deem as unfair and non-productive. Some glove companies engage in other business activities and not only produce gloves. So taxing non gloves profit is really unfair.
3. Other more constructive ways.
A 10% of tax on profit broadbase may bring in 1 bil additinional tax in 2021 and 2 bil in 2022. while it appears significant by itself but it might bring repercussion and lossess in the following way.
1. KLCI index
It will hav negative impact in the midst of a weak sentiment during COVID pandemic. Topglove and Harta will pull KLCI index further down on the impose of the tax. Industry linking to Glvoes like Packaging , Chemicals Logistics will all experience repercussion . Other non KLCI index stock which are on Funds portfolio will experience selldown due to collateral damage. Erasing off EPF and other major FUND manager portfolio in more than 10 of Billions of value.
2.Reducing dividends payable to EPF.
Reducing profit means reducing EPF and other Funds dividend payment. Meaning Rakyat is getting lesser dividend from EPF.
A Tax on GLoves also mean A TAX on RAkyat indirectly since most funds invested due to their attractive dividend yield during this trying time.
Beside dividend, capital gain from glove investment warrant a hedge against other lossess suffured from other portfolio.
3.Sending wrong signal to investor and business.
Imposing Windfall tax on business is actually discouraging potential investor from coming into Malaysia.
While one hand Government is welcoming manufactuer to setting up plants in Malaysia by giving incentive which i believe many now are waiting to come in due to glove good future prospect. On the other hand is contemplating imposing Windfall tax on them. It is sending a message to them that your profit is not yours. We will take more from you if you earn too much. Sounds very sexy to me.
4. International Image at risk.
A windfall tax is actually a tax on PPE. Why? It is because a rise on Gloves ASP are due to supply and demand of the market. But a TAX is totally adding insult to injury in the midst of Pandemic by own free will. All other leaders are busy reducing tax and making it cheaper to import . Malaysia will be the FIRST country in the world to impose tax on GLOVES. Indirectly is imposing tax on other country .
I think the the next US president and other leaders will frown upon this shortsighted action. Probably the next action by US might be tariff on malaysia goods incoming in future. China ,Thailand and other glove producing country will clap their hand and wait for influx of new glove manufacturer into their countries. They migh reduce tax further to help Malaysia in their brave endeavour.
5. Exodus of local manufacturing glove producer.
Malaysia seems to be unfriendly to glove prodcuer if a windfall tax is impose.
After limiting foreign labor in glove company which inhibits their expansion to produce more gloves to help pandemic. Imposing Windfal tax will further impede their expansion plans again and also their competitveness.
Malaysia will be helping competitor in their expansion (CHINA, THAILAND ,VIETNAM is smiling behind clapping hands again and praising their good friend).
Malaysia got to wake up. the future of gloves will be local made in big countries like US , UK Canada and others.
Supermax latest movement already show the future of Glove . If they intend to tariff to protect their local made. Malaysia producer will start planning expansion oversea and no longer in Malaysia because of shortage of labor and high tax.
By then Malaysia will need to provide aids to local glove company because they have taken windfall tax from them in the past. So is it worth while to take from them now and then pour them bak later ? If the Government dont help, rest assured many other countries will help.
How much to impose?
If the Government really insist on Taxing a close consultation with the market leaders is neccesary.
As it will involve their cashflow and project expansion in future. More Incentive for Manufacutring expansion should be given since governemnt already tax them on their profit with Windfall Tax.
If a stick is unleashed, a carrot shld be expected as well.
We do not object to a tax, but it must be done in a mutual benefit way. A progressive and long term planning is needed to protect and nurture Malaysia Glove industry of many years in making. Please do not destroy it.