With an ever-increasing cost of domestic living in Malaysia, questions after questions storm the brain, defeating general perceptions and acceptance towards spending. Because almost all conveniences we can find today in and out of a city requires some form of financial base, there’s almost nothing left in this world you can get for free (albeit the oxygen we breathe in). This should be pretty much where our infamous quote comes from:

No money, no talk; no money, no honey.

And so forth.

While we’re not pushing the topic on “How to spend your money wisely” or “How to budget your income” in both the corporate and personal arena, KLM Finance is going to talk about tax conundrums in Malaysia, today. What has tax come to, where is it going, some of the government’s activities on tax and so forth. Read on.

Tax & the Malaysian Government

All of us can bite our nails or quietly shiver in fear on the government’s imposition, rules & regulations on personal tax for that matter; but the question remains: “How well would you spend taxpayers money?” (Click on the link to read news article)

1. First, it’s understood recently that airport tax will not be reduced because we’re one of the lowest.
2. And we can finally calm down a little when the Malaysian government said “NO” to 10% on GST.
3. New Zealand cuts personal & corporate taxes, then raises GST from 12.5% to 15% while Britain increases its VAT (Value Added Tax, which is pretty similar to our GST) from 17.5% to 20%.
4. (Historical) Malaysia will be introducing 4% GST.

That’s quite enough on current news.

In the corporate sector, many would’ve felt the pinch of the financial downturn caused sometime ago last year – Then CFOs’ from small companies to large multinationals and GLCs’ suggest a singular, most basic mandate – “Let’s do more with less”. Literally, this reflects financial trouble faced by companies in their day-to-day activities.

As a result, budget cuts are implemented and profits are withheld, kept safe in a locked room. Sales proposals can be seen to be more vigorously pushed, yearly operational costs are greatly reduced and; there’s this sudden realization of business fact: “Corporate Tax planning“.

Tax Planning Epiphany

It may not be too late for you and your company to indulge into tax planning – And that’s if you’ve had your share of “let’s do more with less” then the brainstorming of how to reduce company operational costs, or, reading this article.

Everyone running a business or a company should give a thought to this: “Would investing in improvements based on high-value activities make a substantial contribution to a company’s tax ability to create more avenues for ‘less for more’ tax?”

If logic strikes you in the head, you’ll probably go for the answer “Yes”. It’s not illogical to say no, but when you aggressively pursue profitability under strict enforcement of regulations, you may end up in higher costs and taxes in the long run. Gaining extra advantage in tax planning during a mid-economy crisis may not bode well for you and your organization after all.

Are you asking me to reduce my company’s profit for tax benefits?

Not really. Profitability isn’t profit – Both the terms may seem similar but are different in context. Instead of looking forward to push for more profits during a rough economic climate, give some thought to ‘maintain’ your company’s profitability in the meantime, while push for higher profitability during a economic restoration.

Companies could reduce cash tax payments/effective tax rate (in Malaysia’s case, 2009’s year of assessment is 20-25% depending on paid up capital) by promoting tax efficiency (by hiring a tax advisor for consultancy), improve management & oversights of tax related risks or improving tax planning.

KLM Finance will continue this topic next week.

Upon the release of the new IFRS (International Financial Reporting Standards), KPMG has taken the trouble to publish “First Impressions: Financial Instruments Classifications & Measurements” dated July 2009.

We at KLM believe that this is an extremely useful document for those in the financial industry, especially Accountants, financial controllers or any of in such positions to look at. Other than just new and suggestion implementation, alternative models, FASB (Financial Accounting Standards Board) proposals and measurement principles, the document is also very elaborate when it comes to depicting classifications in decision tree formats.

On April 2009, the Group of Twenty Leaders (G20) called accounting standard setters to propose notions to reduce the complexity accounting for financial instruments.

KPMG - International Financial Reporting Standards: Classifications & Measreuments for Financial Instruments

Budget 2010 – Updated!

Last update: 11th November 2009 – By BERNAMA & BTIMES.

The Economy

• Malaysia economy to grow 2-3 per cent in 2010
• Mining to grow 1.1 per cent, manufacturing sector 1.7 per cent, agriculture 2.5 per cent, construction 3.2 per cent and service 3.6 per cent.
• Private consumption expand 2.9 per cent while private investment 3.4 per cent
• Per capita income to increase by 2.5 per cent to RM24,661
• Federal Government revenue in 2010 to decline by 8.4 per cent to RM148.8 billion.
• Budget deficit at 5.6 per cent of GDP compared with 7.4 per cent in 2009.

In Finance

1. “The stock market will be further liberalised to enhance its efficiency as well as attract domestic and foreign investment. For this purpose, the government will undertake the following measures: First, liberalise the commission sharing arrangements between stockbrokers and remisiers in 2 stages to encrouage retail participation in the stock market. The first stage, which takes effect immediately, allows flexible brokerage sharing at a minimum rate of 40 percent for remisiers. The commission sharing will be fully liberalised in the second stage, effective 1 January 2011.
2. “Allow 100 per cent foreign equity participation in corporate finance and financial planning companies compared with the present requirement of at least 30 per cent local shareholding.
3. “Islamic banking assets account for 18.8 per cent of Malaysia’s total banking assets while takaful industry assets contribute 7.7 per cent of total insurance and takaful industry assets. To ensure rapid development of financial services, particulalrly in Islamic finance, the government proposes that the existing tax incentives be extended to 2015.

In Community, Halal, Training and Agriculture

1. Government to allocate RM899 million to intensify tourism industry.
2. 1Malaysia Development Bhd (1MDB) will establish a corporate social responsibility fund totalling RM100 million as a start to finance community activities
3. Formulate Halal Act in collaboration with State Islamic Religious Councils.
4. To corporatise the Halal Industry Development Corporation as an agency under MITI
5. Intensify Halal Certification by the Islamic Development Department of Malaysia (JAKIM) by collaborating with international institutions to obtain standards certification such as HACCP ad GMP.
6. To provide RM24 million to develop halal products anti-smuggling system at three entry points and three main ports.
7. Allocate RM82 million to modernise aquaculture industry and conduct entrepreneurship training scheme for aquaculture breeders with focus on production of fish fry and ornamental fish.
8. Effective Jan 1 2010, government agrees to allow agencies to retain 50 per cent of rentals received while the remaining 50 per cent will be remitted to the government as revenue.

For Education

Bai’ah, or more commonly known as the “New Deal” (linguistically, bai’ah signifies bartering or exchanging commodities, making a covenant, a compact, an agreement or the like), will be introduced for appreciating the contribution and performance of principals and head teachers in high performance schools. 20 schools have been identified, and the Malaysian government plans to appraise at least 100 or more in 2010.

In higher studies, the National Higher Education Fund Corporation loans are able to be converted into scholarships beginning 2010, if student performances graduate with first class honours.

Early childcare & education in Malaysia: RM100mil allocation, Permata programme as a recognition of the importance of early childcare and education in Malaysia, by Datin Seri Rosmah Mansor. (Children’s age for PERMATA programme: < 5 years old)

Effort to increase children count in pre-schools: Training, tax relief and government loans to those who’re setting up kindergartens. (Under RM30 billion budget allocation – No exact sum quantified, through the implementation of the national key result areas (NKRA).

For Property & Development Projects

Updated: 11th November 2009

• Government provides RM41 million to improve income and quality of life of the Orang Asli Community by implementing various projects.
• Government allocates RM2.3 billion to build and upgrade infrastructures in rural areas.
• RM14.8 billion is allocated to manage, build and upgrade hospitals and clinics.
• Allocate RM137 million to upgrade and improve drainage and irrigation infrastructures in paddy fields involving 180,000 farmers.
• TNB to spend RM5 billion to implement electricity generation, transmission and distribution projects in 2010.
• To provide RM70 million to build the Paya Peda Dam Project in Terengganu to increase water supply capacity to paddy irrigation scheme in Besut.
• Public-private collaborations to include an integrated immigration, customs and quarantine complex in Bukit Kayu Hitam, construction of six UiTM campuses and the development of MATRADE centre

Budget 2010 allocations totalled RM191.5 billion, of which RM138.3 billion is for operating expenditure and RM53.2 billion for development expenditure.

RM200 million (RM200, 000, 000) will be allocated to refurbish and revive low & medium cost housing projects. 41 development projects have been identified. This is a one-time funding allocation.

For Rural Development Projects

RM2.3 billion (RM2, 300, 000, 000) will be allocated to various rural development projects, distribution for tender projects under the Rural and Regional Development Ministry starting 2010.

Budget 2010 on Fiscal Updates

1. The Government will issue 1Malaysia Sukuk totalling RM3 billion.
2. “The government needs to ensure that the Malaysian tax system is equitable and able to generate revenue for development purposes. In line with this, the government proposes that a tax of five per cent be imposed on gains from the disposal of real property from 1 January 2010. (RPGT)
3. “The government is currently at the final stage of completing the study on the implementation of goods and services tax (GST), particularly to identify the social impact of GST on the people. The purpose of this study is to ensure that if GST needs to be implemented to stabilised Government finance, it will not burden the population. “If the government implements GST, it will replace the current sales tax and service tax as well as exemption will be granted to the low income group. The GST rate to be imposed will be lower than the current sales tax and service tax rates.
4. Government to enhance tax incentives for healthcare service providers who offer services to foreign health tourists with income tax exemptions of 100 per cent on the value of increased exports from 50 per cent previously.

In equity markets, the Malaysian government has decided to reduce the budget deficit from 7.4% this year (2009) to 5.4% next year (2010). This fiscal consolidation may see improvement of stock volumes, as it promotes value for money, high-return investments for investors.

Budget 2010 on Real Property Gains Tax (RPGT)

On Real Property Gains Tax (RPGT) for companies, the Malaysian government issued a capping limit of 5%, where RPGT is imposed on gains from real property disposal irrespective of holding periods and owner categories. Schedule 5 of Real Property Gains Tax 1976 shouldn’t be applicable anymore. This move is effective 1st January 2010.

The Real Property Gains Tax is reported to be the tax base of the nation – In other words, revenue.

RPGT for individuals and non-corporate entities will also stand at 5%, where level of exemption increases from RM5,000 to RM10,000 or 10% of chargeable gains (whichever is higher), disposal of residential property once in a lifetime and exemptions to gifts between parent to child, husband to wife, grandparent to grandchild (family).

In 2009, year of disposal vs. date of acquisition was at 30% for the 2nd year, 20% for the third year (for non-citizens, non permanent residents, still 30% for 3rd year), 15% for the 4th year (still 30% for non-citizens), 5% on the 5th year (30% for non-citizens) and for the 6th year thereafter, 5% for companies and none for individuals and non-corporate entities, 5% for non-citizens.

So in this case if you’re selling a house 5 years after you’ve bought it, the Budget 2010 will reap 5% off even 6 years or thereafter – In 2009 and before, there is no tax imposed on this. Another new rule you will see is the acquirer will remit considerable amount to the Inland Revenue Board (IRB) 60 days from the date of disposal (layman version: Sale).

For Cigarettes

On cigarettes excise duty in Malaysia, an increment of 1% is seen, going  up to 5.6%. Excise duties on beer remained unchanged.

For Individuals Tax

1. The Government proposes existing personal tax relief of RM6,000 for EPF contributions and life insurance premiums be raised to RM7,000.
2. The Government proposes the maximum income tax rate to be further reduced to 26 per cent from 27 per cent effective from the 2010 year of assessment.
3. Individual tax relief on broadband subscription fee up to RM500 a year from 2010 to 2012.
4. Individual taxpayers to be given tax relief on broadband subscription fee up to RM500 a year from 2010 to 2012
5. Government to launch a scheme in January 2010 that enables EPF contributors to utilise current and future savings in Account 2 to promote house ownership.
6. The Government will establish the 1Malaysia Retirement Scheme to be administrated by EPF.
7. Employees EPF contributions will be raised again to 11 per cent on a voluntary basis with immediate effect. However, from Jan 1, 2011 employees’ EPF contribution will revert to 11 per cent.
8. Civil servants are eligible to apply for computer loans once in every three years and up to a maximum of RM5,000 from the government once in every five years

Individual tax is to be seen reduced to 26%. Personal tax relief for budget 2010 will be increased by RM1,000. In 2009, it’s RM8,000 and in 2010, it’ll be RM9,000.

Individuals earning less than RM24,000/annum (RM2,000/mo) will be free of income tax.

On life insurance premiums & EPF contribution for budget 2010, existing personal tax relief of RM6,000 will be increased to RM7,000 from January next year for people with annuity schemes.

For Malaysian individual tax, which is seen at <RM2,500 (first time) at 0% chargeable tax, RM2,501 – RM5,000 to be at 1% (also next RM2,500) and RM5,001 – RM10,000 (and next RM5,000) to be at 3% in 2009, dropping 1% in 2009 from 2008; in the categories of RM35,001 – RM50,000/p.a. and amount exceeding RM250,000/p.a.

Iskandar Development region knowledge workers at a number of sectors who work and reside in Iskandar Johore will be subjected to a flat 15% on chargeable income. These sectors include education services, biotechnology, green technology, healthcare, financial advisory and consultancy services, creative industry, logistic services and tourism.

For Petroleum Tax

1. The Government will implement fuel subsidy management system in early 2010.

In petroleum tax, the Malaysian government plans to speed up tax collection by requiring petroleum companies to pay taxes in the same financial year. This move may see a number of good and bad governing factors, but the good one being fast tax collection. In previous years tax collections are often forwarded to the next financial year.

For Tax & Finance

The Accounting Digest wrote about “Recommended Budget 2010 for Tax“, giving pointers on Withholding Tax System, Taxation Fees, Tax Losses and Group Relief.

Among some of the listed recommendations (CIMB , PWC, etc.) for corporate tax codes and another financials include:

1. Tax incentives for ‘installers’ or ‘bringers’ of green technology.
2. Reduce import duty on environment-friendly vehicles such as hybrid cars.
3. Introduce potential subsidy for biodiesel programmes.
4. Tax credit for R&D that supports fundamental and applied research.
5. Allow companies to take 30-40% tax credit in expenditure on research and experimentation, global standards setting, branding and workforce training.
6. Reduce holding costs for property developers of unsold bumiputra property units six months after the project launch.
7. Real estate investment trust – Reduction in withholding tax.
8. Bumiputra discount ONLY FOR housing properties below RM250,000.

Budget 2010 – The RM470 billion

In March 28th, 2009, our dear Prime Minister Mr. Najib announced an extra RM200 billion allocation under Budget 2010, as he expects revenue generated in return to double up to RM470 billion in the period of 2 years. These four packages totaling at RM470 billion is seen to ’sustain’ Malaysia from the economic turmoil from middle towards the end of 2008, all the way up to-date.

The Statistics Department of Malaysia reports highly interesting statistics on the GDP, however. As much as its growth rates has sharply plummeted starting 2008, figures weren’t looking so good in 2009 either.

In Quarter 2 of 2008, the GDP growth rates were at 6.6%, Quarter 3 at 4.8% and a sudden drop of 0.1% to -6.2% in Quarter 1 of 2009. In between Quarter 4 of 2008 – Quarter 1 of 2009, these are when public and private sectors are well aware of the mass media’s attention towards economic downturns that are affecting a number of MNC companies worldwide.

‘National’ bailouts of AIG, Fannie Mae and Freddie Mac, fall of Lehman Brothers and so forth. Although drastically improved, Quarter 2 of 2009 sees an improvement of 2.3%, which brings it to -3.9% in Quarter 3.

GDP current prices were at RM155 billion at Quarter 1 of 2009 and RM161 billion at Quarter 2. GDP constant 2000 prices were at RM121 billion at Quarter 1 of 2009 and RM126 billion at Quarter 2 of 2009. In 2008, GDP current prices were at RM738 billion and 2000 constant prices at RM528 billion.

According to the Malaysian Insider, Mr. Najib also allocated RM27.9 billion in the form of subsidies including for petrol, diesel, cooking gas, wheat, bread, sugar, flour, rice, text books, scholarships, education, health, welfare and highway toll.

Can Budget 2010 achieve balance?

The Malaysian government’s aim to reduce operational expenses (as heard from approx. December 2008 until today) has seen to not have much effect at insiders’ points of view. Unproductive, underperformance or largely inflated operational expenses which can sometimes be masked behind ‘additional personal expenses’ probably wouldn’t give much effect on growth values.

Budget 2010 is expected to have a lower fiscal deficit – 5.5% in estimate, according to Reuters. Financial analysts figured a high fiscal deficit estimated at 7.6% according to The Star.

The Asian Development Bank had revised its forecast for Malaysian economic growth this year to -3.1% from an original -0.2%. “The expenditure ceiling under the Ninth Malaysia Plan (2006-2010) is RM230bil and a total of RM174.2bil, or 75.8% of total allocation, has been utilised.

“This means that a balance of RM55.8bil will be allocated for the 2010 budget, a rise of 1.3% from an estimated RM55bil in 2009 (assuming a 3% spending shortfall from the budget allocation of RM56.7bil) – The Star.

Mega projects such as Interstate Water Transfer Scheme (IWTS) amounting to RM1.3 billion, the Medini integrated development in Iskandar Malaysia infrastructural works at RM766 million, Sepang LCCT, LRT extensions for Klang Valley and Bakun Undersea Cable Project are less than 20% of the planned projects – Which could mean more spendings yet to be unsure.

While Malaysian government anchors 1Malaysia and looks to address the needs of Malaysians first, it has been said that the agricultural industry will receive more focus on their part – The rest of it such as healthcare, broadband infrastructure, telecommunications, rural developments and education has been spoken much in the past years – Malaysians still have major concerns that are yet to be addressed.

Public transportation, being another major problem as citizens are not maximizing the usage of public transportation in certain areas, there are some areas to where mass people transporting is a concern. A good example would be light rail transit systems, where fiscal deficits are often the major problem. Others include overcrowded and under-developed infrastructure (in which the government is looking at another mega project of LRT extensions, said to cover areas close to Sunway Pyramid).

Budget 2010 – Before announcement

First published on September 1st, 2009.

The ‘Malaysian‘ Budget for Year 2010 seemed promising for some companies out there, but to what extent can you expect out of the budget to help your business grow faster?

It has been said in the main media that our Prime Minister, Mr. Najib has planned out a “Shrinkage of Budget Deficit” plan. Just to satisfy the technical people reading this – The Malaysian government intends to reduce expenses to falling offset revenues. Of course, you can read that anywhere. While the purpose of “The Accounting Digest” is to provide “between-the-line” explanations pertaining the finance and accounting industries, stories of what the Malaysian government is planning to do can vary.

Malaysia’s Budget 2010

Injecting billions of Ringgit as stimulus packages often come with one main responsibility every receiver and giver has to handle – Discipline. It’s quite impossible to expect small companies to positively response to economic downturns, albeit the fact that their management practices have good cash reserves, financed well or practices excellent financial management.

The RM67 billion stimulus plan is measured to encumber businesses from fallouts, at the same time allow small timers to grow competitively. Yet again:

Malaysia has unveiled RM67 billion (US$19 billion) of stimulus measures to counter a global recession that policy makers predict may cause the Southeast Asian economy to shrink as much as 5 per cent in 2009.

The additional spending will swell this year’s budget shortfall to 7.6 per cent of gross domestic product, the biggest in 22 years, the government said in March.

That prompted Fitch Ratings to lower Malaysia’s long-term local-currency credit rating to A, the fifth-lowest investment grade, from A+, on June 9. It was Fitch’s first rating cut for the nation’s debt since the Asian financial crisis in 1998. -Business Times.

Yet again, the Malaysian government has said to put focus in education & health infrastructures, public social frameworks, agricultural and export growth for the country. These are excellent to start with – But how long have we been putting focus on these basic needs?

Tax Measures to call for in 2010

Looking at everyday news and getting updates from the mass media can be informational and entertaining – But it comes down to evaluating your businesses from the very foundation of it. Since many financial analysts, experts and economists would charge you a bomb for just advices alone, The Accounting Digest will point out some highlights in tax functions to help you evaluate and understand better:

Filing tax returns is no joke. Don’t expect the tax framework to benefit you. Instead, make it work for your business in particular.

• Withholding tax system – Income tax from employees paid directly to the Tax department. For small companies, a financial restructuring plan can be done, but multiply that by 20 – 100 employees. Ask us how you can perform proper financial restructuring on withholding tax on your company.
• Taxation Fees – Corporate tax return fees, bookkeeping (in some cases) fees, company secretarial fees, etc. Since tax filing is complicated and varies between businesses, your local tax professional can now provide you a list of what to declare, what can be declared and to what extent.
• Tax losses and group relief - (In taxation) When total expenses are more than income, you can incur a loss for taxation purposes. For certain industries, tax losses are at 70%. If you’re unsure about how to go about this, be sure to ask your local tax professional.

Introduction

Following the brilliant 15Malaysia short clip “Potong Saga” in which characters in the film joked about Islamic finance, we can see that there are often misunderstandings about what Islamic finance is really all about. As KL Management has written, practiced and helped many companies/individuals over the years on Islamic finance, it’s probably time to place another gentle reminder on the difference between politically correct terms used in finance – Islamic & conventional.

To Islamic Finance

Shariah (also spelled Syariah, Sharia, Syaria, etc.) principles is the ultimate foundation and concoction of what Islamic finance is really all about. The promise delivered here is that Islamic finance expresses a lot of financial needs and interests of individuals and companies with much integrity, honest, trustworthy and equitable finance management/distribution in the subject of speech.

What makes Islamic finance a growing alternative for financial dealings is that good corporate governance, fairness and transparency in all of finance combines as a single package: Think of it as more consumer-focused, fair and justifiable approach to mutual sharing of risks and rewards.

Islamic finance features

Mutual risks and rewards – Profit and risk sharing. Because financial dealings with both parties (or more) has to be clear of any uncertainties, dealings adopt strong due diligence and much transparency.

If you need more information on Islamic finance, please schedule an appointment with one of our financial consultants.

CFO – Settle for a good one

“Settle for a good CFO; because financial strategies can mean life or death.” In Malaysia, there should be a change in attitude already. Time and time again, excellent financial management has proven itself worthy of success and failure of a forward-thinking business. CFOs’ who are equipped with proper fiscal philosophies, financial tools, market understanding and strategic methodologies can mean a transformation in focus.

A business isn’t extended to only its operations and management roles: As the nitty gritty financial woes come along, financial planning is nonetheless crucial to the business’s growth. But are fast-growing small companies (SME/Is’) in Malaysia benefiting from clever financial handling that can help them achieve positive operational growth while brilliantly managing financial roles, mitigating risks and push for forward thinking financial planning?

Expect CFOs’ to handle the variety load of financial information already: Be it financial information mining, risk management, forecasting elements, business process methodologies and more – Now they have to handle IT solutions where technological support enhances and transforms tedious financial processes that affects a large number of business functions in a company.

Don’t wait to consider all the factors – Let the CFO assess your company first.

Roles of a CFO

CFOs’ have evolved over time – Not that its basic responsibilities are shaken off, but has changed rapidly to suit growing demands of a forward-thinking business. Other than just addressing financial processes, they now look into fiscal matters surrounding business environments, quickly tackle current and upcoming issues while closely monitoring financial performance through excellent financial management tools such as XBRL.

Their goals are simple: Increase shareholders’ value, maximize sales returns, mitigate risks and perform basic acquisition operations. From restructuring financial processes bottom up to reviewing cost control measures taken, small businesses can very well benefit from:

1. Fresh, new start of good financial management culture whether in accounting or finance departments.
2. Develop strategic financial plans that can positively affect bottom-line performances (not just through operations).
3. Raise funds and/or restructure business processes through takeovers, M&A and acquisitions at an early stage.
4. Identify capital spendings to create future benefits (risk management involved) at an early stage.

To further explain the more technical details of a CFOs’ job scope:

• CFOs’ often start from the Accounting/HR department, where they look closely into historical financial reports and current ones. Rearranging, clearing up petty issues and making the accounts current.
• For a process like this that can take from 3-9 months depending on the size of the company and its back-log lags, minor financial administration processes are first solved.
• Legal & tax compliances are often focused. Accounts auditing will often address issues such as internal controls, possible benefits and reporting loops that can be further improved.
• Once a solid foundation of financial management is found and accounts are current, CFOs’ take businesses to a new level – Where benchmarking of financial performance, strategic business process management techniques are applied onto departments such as tax, risk management, cashflow, budgeting, etc.
• Any actions further than the one above is often funding acquisition, financial data collection or merger and acquisition (M&A) activities.

CFO Services for Small Businesses

Often, people associate acquiring CFOs’ to expensive and possibly not a worthwhile ‘purchase’ for small businesses. CFO KL Management Services would like to think NOT so – The above article has explained to you why small businesses SHOULD hire a CFO early – Because strong business presence and quick growth often reflect to how sturdy or steady its financial management are: And if you want to do it right, do it right EARLY.

KLM offers affordable CFO services in Malaysia and a free consultation on top of that. Contact us to find out more.

Update: Check out our new post for a more detailed version of Budget 2010 in Malaysia.

The ‘Malaysian‘ Budget for Year 2010 seemed promising for some companies out there, but to what extent can you expect out of the budget to help your business grow faster?

It has been said in the main media that our Prime Minister, Mr. Najib has planned out a “Shrinkage of Budget Deficit” plan. Just to satisfy the technical people reading this – The Malaysian government intends to reduce expenses to falling offset revenues. Of course, you can read that anywhere. While the purpose of “The Accounting Digest” is to provide “between-the-line” explanations pertaining the finance and accounting industries, stories of what the Malaysian government is planning to do can vary.

Malaysia’s Budget 2010

Injecting billions of Ringgit as stimulus packages often come with one main responsibility every receiver and giver has to handle – Discipline. It’s quite impossible to expect small companies to positively response to economic downturns, albeit the fact that their management practices have good cash reserves, financed well or practices excellent financial management.

The RM67 billion stimulus plan is measured to encumber businesses from fallouts, at the same time allow small timers to grow competitively. Yet again:

Malaysia has unveiled RM67 billion (US$19 billion) of stimulus measures to counter a global recession that policy makers predict may cause the Southeast Asian economy to shrink as much as 5 per cent in 2009.

The additional spending will swell this year’s budget shortfall to 7.6 per cent of gross domestic product, the biggest in 22 years, the government said in March.

That prompted Fitch Ratings to lower Malaysia’s long-term local-currency credit rating to A, the fifth-lowest investment grade, from A+, on June 9. It was Fitch’s first rating cut for the nation’s debt since the Asian financial crisis in 1998. -Business Times.

Yet again, the Malaysian government has said to put focus in education & health infrastructures, public social frameworks, agricultural and export growth for the country. These are excellent to start with – But how long have we been putting focus on these basic needs?

Tax Measures to call for in 2010

Looking at everyday news and getting updates from the mass media can be informational and entertaining – But it comes down to evaluating your businesses from the very foundation of it. Since many financial analysts, experts and economists would charge you a bomb for just advices alone, The Accounting Digest will point out some highlights in tax functions to help you evaluate and understand better:

Filing tax returns is no joke. Don’t expect the tax framework to benefit you. Instead, make it work for your business in particular.

• Withholding tax system – Income tax from employees paid directly to the Tax department. For small companies, a financial restructuring plan can be done, but multiply that by 20 – 100 employees. Ask us how you can perform proper financial restructuring on withholding tax on your company.
• Taxation Fees – Corporate tax return fees, bookkeeping (in some cases) fees, company secretarial fees, etc. Since tax filing is complicated and varies between businesses, your local tax professional can now provide you a list of what to declare, what can be declared and to what extent.
• Tax losses and group relief - (In taxation) When total expenses are more than income, you can incur a loss for taxation purposes. For certain industries, tax losses are at 70%. If you’re unsure about how to go about this, be sure to ask your local tax professional.

Need to read more? We have more on Budget 2010. Click here to read updated (26th October 2009) version of Budget 2010 for Malaysia.

Yesterday’s economic climate may be tough on some large companies, let alone SMEs’ who barely make ends meet every month. Given the fact that financial experts were the ones who got us into this trouble and also out, who do we really put the blame to? In essence, excellent financial planning per annum is often a priority; and CFOs’ often put focus on issues other than just business concepts and goals.

There are a lot of things beyond our control at some point: Non-fuel commodity prices, consumer demand, cost of fuel, inflation, and so forth. Regulating financial processes through forecasts by experienced CFOs’ can prove to be the best thing – But also leaving space for liquidity, high financial tolerance levels and so forth. Brings us back to one point: “Can governments reduce the probability of any future financial crises that we’ve just recently experienced?”

Being one entity that participates in best financial practices is often not enough – Let alone depend this ‘word spread’ among other partner entities and the general public. Local regulators like government bodies need to consider the wide market while balancing financials for best performing industries, or forecasted rising opportunities. If you notice, we’re getting into a financial bind that could cause us trouble if not managed well.

Last month, the Obama administration put out an 89-page document titled Financial Regulatory Reform: A New Foundation. If you have time to read the whole report, they are generally based on making sure financial institutions do not overdo amplified potential gains with borrowed money, in which creates more and more binds; generally increasing cash outflow on interest rates rather than for development.

It’s not your general mortgage loan which costs RM300,000 or RM500,000. It’s probably US$10 billion or more. Should you be one of the group investors, stakes are high and you’d probably need to be commensurated with a favorable amount to justify your risks.

Technically speaking, there are probably no solid reasons why financial institutions should get into this mess anymore after being slapped so hard on the face with the recent economic turmoil. If we were to think of it realistically, could these institutions be covering their past?

And in Malaysia, could we be getting into more bond troubles? Let us know what you think.

Is it not bad enough in the tough economic climate many businesses are now facing, that credit risks are high? In any business, its ‘paying’ customers are its life and death – While their ability may be a different story, their ‘paying-now’ action differentiates a lot from cash flow reports to balance sheets. But these days, credit terms get more elaborate and if you cash flow is weak on your side, you’d better not consider this blood-sucking option.

The pay “NOW” and pay “THEN” factor varies from industries to industries, products to trading cultures. Financial controllers often take into consideration three (3) parts of assessing credit risk – Defaulting probability, credit exposure and recovery rate.

When credit is DUE

CFOs’ often have a list – What to look at first. Financial controllers have always topped ‘credit risk’ in their list of things to look at. Yet, there is always lack of action. Not only that is the problem, CFOs’ also refuse to move away from traditional credit practices to assess risks. They simply cover reports from credit risk companies (and often at a high price), slap some conclusions and recommendations in and voilà.

Traditional and common steps often taken to reduce credit risks are:

1. Deliver ONLY if COD (Cash on Delivery) is accepted by the buyer.
2. “Net 30″ credit terms – Literally means “Pay in 30 days from the invoice date or else…”
3. “Net 15″ credit terms – Literally means once the invoice is issued (invoice date), payment is due in 15 days. Variations: (x% 15, Net 30); (-$x 30, Net 45), etc. Variations of (x% 15, Net 30) means payment terms are 30 days, but if payment is settled within the first 15 days, [x%] discount on invoice value is given. [-$x] works the same way, just that it’s defined in value instead of percentage.
4. “High profit, low volume only“. Usually, the distributor will only accept credit terms for specific products. Limits the buyer from acquiring large volumes of products and minimizes distributor credit risks.
5. “Half and Half“, literally means selling fewer products to the retailer (or buyer).
6. Total cancelation of service.

Analyzing credit risks to potential defaulters should be handled by professional finance executives. This includes background search, database acquisition, monitor payment & purchase history, refresh credit checklist and so forth – To minimize defaulting risk and forecast possible defaulters. According to Pam Krank, president of Credit Department, an accounts-receivable consulting and outsourcing firm, says CFOs are still analyzing risk maybe once a year, instead of stratifying their customers so they can monitor the high-risk ones monthly or even more often.” -CFO.com

Combating Credit’ing’ – Act like a bank

Extracted from CFO.com.

Acting Like a Bank
Indeed, with many customers asking not only for credit but also for longer-than-normal terms, Krank recommends requiring them to apply for extended terms, rather than offering them for nothing. “We may ask for a personal guarantee or tax information,” among other pieces of information in the applications, she says. “If you’re going to extend these terms, you have to act like a bank.”

Getting more customer information can take a variety of forms, but many finance executives say face-to-face interaction — or at least voice-to-voice — is among the most critical. At Huntsman Corp., assistant treasurer Molly Pryor says the $10 billion chemical manufacturer has a longstanding practice of having her team carefully analyze customers’ financial statements. “When you do that kind of due diligence, you can be ahead of problems by six months,” she says.

Now, though, she’s spending more time getting the CFOs of customers with more than $500,000 in outstanding debt on the phone. “We have more active communication at more senior levels these days, where you really dig into what their projections are for their cash flow,” says Pryor.

Besides asking what expenses the company might be cutting, she wants to know about what sources of outside funding they might have. Those could include bank facilities that are close to maturity and might be at risk of not being renewed or renewable only at a higher interest rate (and expense). “If you’re an important supplier, they’ll work through it with you,” says Pryor. “Those that are really in trouble are evasive, and you typically can’t even get to the CFO because they’re on bigger matters with banks.”

To reduce the risk from customers on the verge of going under, earlier this year Huntsman formalized a policy of holding orders, according to Pryor. “If they don’t pay their bill on time, we don’t give them new product, and it didn’t matter if they were big, small, public, or private,” she says.

In cases where there’s a competitor to Huntsman, of course, that exposes the company to more competition. If Huntsman is the sole supplier, it risks putting its customer out of business. To mitigate those difficulties, Pryor says the company will offer to let select customers pay off their current balance on installment while requiring cash in advance or a letter of credit for any new orders.

On the 3rd August 2009, Bursa Malaysia (KLSE) and Securities Commission Malaysia (SC) jointly launched a new framework for listings and equity fund-raisings, as reported in KLM’s main accounting blog:

1. The Main Market - 21st June 2009
2. The ACE Market – 22nd June 2009

This new framework provides efficient access to investments and capital; strengthening Bursa Securities’s position as a conductive capital raising destination to both local (Malaysian) and foreign companies. New listing requirements are then implemented and existing ones modified – Raising mixed reactions from investors and financial controllers.

Main & ACE Market Shifts

The “ACE” market is short for ‘Access, Certainty, Efficiency’; a revamp of the existing MESDAQ market (’Malaysian Exchange of Securities Dealing and Automated Quotation’) which is launched approximately 12 years ago, dated back to 6th October 1997.

Some of the significant shifts in the regulatory approach (listings and equity fund raisings) are to change its environment into a more market-based regulatory, increasing efficiency and competitiveness while protecting investors. Bursa also reports that ‘blocks have been put in place to enhance the standards of due diligence, disclosures and corporate governance’.

Related (opens in a new window), as of 14th August 2009;

1. Bursa’s Main and Ace Market official media release.
2. Ace Market’s Schedule of Fees (for listing).
3. Main Market’s Schedule of Fees (for listing).
4. Technical briefing – Main Market.
5. Technical briefing – ACE Market.
6. Listing Criteria in Main and Ace Market (shortened)

Older links:

1. MESDAQ Listing Requirements (2001)

CFOs’ (Chief Financial Officers) play crucial roles in a company – Be it a huge multinational company or an SME. Sometimes, having a good CFO can make all the difference when it comes to handling forecasting, financial instruments, attaining loans, etc. In today’s demanding, ever-changing, high volatility market, CFOs’ are often faced with concerns of their environment – Be it cost of energy, inflation, political administration changes and so forth.

We’ll take a look today at what are the few of the main concerns of a CFO – Especially when his/her forecasting service places so much emphasis on the company’s financial decisions: Go or not to go.

CFOs’ and financial conditions back then

More than a decade ago from 2009, high market volatility forces the nature of CFOs’ decision making to be more frequent, targeted, accurate and forecasting effectively and efficiently. Back then, business processes could live on and the corporate world could take a step-by-step process to achieve a business goal, strategy or maybe just method, as it’s low-paced, low volatility market (low penetration and activity). It should not be so already for companies that fall under the FMCG industry.

Back then, decisions could take months to make – Suffice to say quarterly or maybe in half-year terms. Product commercialization has reached consumers, technological advantages towards fast-paced communication and information transfer has led to a sudden decades-change we experience since the boom of Baby Boomers.

Today, CFOs’ could sit down with the entire management team almost weekly to discuss, amend, implement and revoke decisions or access, when crucial decisions are especially needed in such urgence. For the CFOs’, they have to depend much on their financial forecasting – Their horizon and frequency of business risks and volatility profile, application of financial and non-financial revenue instruments to calculate forecasting, instituting targets and so forth.

So, what are the concerns of a CFO?

Financial decisions, financial concerns.

Usually, there are two types of controllers – Internal and external factors in which some can or cannot be controlled by the CFO or the financial controller. Forecasting, which may be done quarterly, yearly, half yearly or monthly would probably be their main weapon in the armoury – Decisions weighed from political factors all the way to cost of non-fuel commodities.

These factors determine a CFO’s ability to forecast results accurately, as balancing factors surrounding a business often takes mere guessing or common data, key assumptions or revenue drivers.

External Factors affecting a CFOs’ concerns

• Inflation
• Consumer Demand
• Cost of Fuel (For energy hungry regions like the US)
• Credit markets and interest rates
• Political volatility and change of administrations
• Currency devaluation
• Financial regulations
• Market fallouts

What’s interesting to see is actually these few concerns vary from country to country, depending on their greatest financial gain. Reasons behind these financial gains are often spruced by a number of factors, including but not limited to political, internal pressure and leverage of resources.

And then you have the Internal Factors:

Internal Factors affecting CFOs’ concerns

• Talented, qualified employees and leaders.
• Supply chain risk.
• Ability to forecast results.
• Intellectual property protection.
• Weakness of balance sheet.
• Data security and managing IT systems
• Job security (if not owned partially)

If you look at the horizon of what CFOs’ look at beyond the scope of their industry (non-financial derivative), it takes a lot of practice, industrial experiences, knowledge and understanding to be able to obtain excellent forecasting.

A mismanaged or inexperienced CFO can give you more problems than solve.

Make sure you hire the right CFO for your company. An affordable one. Enquire to KLM’s CFO services.