Golf clubs in Malaysia face closure with new tax

Golf industry cries foul over new form of taxation and there is definitely a cause for concern.

Golf clubs in Malaysia face an uncertain future with the new tax issue hanging over their heads.

THE Malaysian golf industry has come under threat of closure again and this time it comes from the Inland Revenue Board.

The IRB now wants to tax all the 180 proprietary clubs (private commercial clubs) on the advance licence fees since the clubs were set up.

The advance fee is the collection of 80% of membership fees that they collect when folks first sign up.

This amount is collected in advance and slowly released into the balance sheet of the companies for the period of the trust deed.

While the industry disputes that the money was taxable as it was a sum that they had to refund if there was a breach of the trust deed, the IRB said it was income to the club and thus is taxable.

The total amount the authorities want the clubs to cough up is more than RM600mil – a sum the golfing industry cannot afford to pay and this could spell the end of many clubs in the country.

A spokesman for the Malaysian Association of Golf & Recreational Club Operators (Magro) said it was not as if the clubs had not been paying taxes or had been hiding the advance fee from the IRB.

He said that the clubs had been in touch with the IRB from the start and had proposed the normal way of taxation based on services.

“This was accepted until 2010 when the IRB wrote to a few clubs and after conducting field audits, decided that the advance fee was taxable.

“The total bill is over RM600mil and they wanted to back tax us all the way to the day the very first member signed up,” the spokesman said.

However, the IRB after several rounds of discussion agreed to cap the backdate of taxation and allow the amount owed to be paid over three years.

A club manager of a popular club in Petaling Jaya said even that concession by the board is totally unacceptable because it will mean the effective end of the golf industry in Malaysia.

“All our profits for the next few years will be wiped out just paying this back taxes. Our club owners will definitely want to exit this business.

“Most of the land we sit on are worth a lot of money and it will make sense for the owners to close down the club and build residential units instead.

At the most, the value of a golf course is only about RM200 per square foot but the houses, condominiums and shops built on top of these land will be worth thousands of ringgit per square foot,” he added.

Already there are several clubs in the Klang Valley, which have either been closed down like Kajang Hill GCC or downsized like KGSAAS, because it is so much more profitable to develop the land into residential and commercial projects.

The owners could also go the way of Palm Garden Golf Club where the owners bought back all the sold membership and turned it into a “premier public course” and thus paying taxes only on income earned from services.

There are about 500,000 members to the 180 proprietary clubs (this ruling by the IRB does not affect members club, at least, not yet) who will eventually lose out in terms of facilities.

There is also the 50,000 direct and indirect workers who will be jobless once the clubs close down.

There is also a tremendous loss of tourism dollars. A total of 120,000 foreign golfers play in Malaysia each year.

They spend an average of four hotel room nights per visit translating into 480,000 room nights. Each of them spend an average of RM300 per night for accommodation and a further RM1,500.

This means that if the golf industry collapsed the country’s economy would lose RM864,000,000 annually.
Let’s not be pound wise penny foolish. The tax dollars can be found through other means and let’s hope the authorities realise this.

CADDY MASTER By WONG SAI WAN

Related post:

Golf courses targeted for re-development - Too valuable for golf?

Cost of vehicle ownership in Malaysia

MALAYSIA is perceived to be one of the costlier countries in the region when it comes to vehicle prices. But industry observers believe that this is compensated by the fact that the country’s fuel prices are heavily subsidised, and that it also enjoys the lowest interest rates in South-East Asia.

“One should not compare vehicle cost of ownership in the region purely based on the price of the car alone,” says Malaysian Automotive Association president Datuk Aishah Ahmad.

According to data by the Malaysia Automotive Institute (MAI), the average interest rate in Malaysia for a loan tenure of between 60 months and 108 months is between 2.5% and 3.6% - which is the lowest in Asean.

Interest rates in Vietnam is the highest, which has a flat rate of 16% per annum for loans that range between 12 months and 60 months.

“Given the fact that Malaysia’s interest rates are the lowest in the region, as well as the fact that fuel prices are subsidised, the total cost of vehicle ownership is one of the lowest in Asean,” says MAI chief executive officer Madani Sahari. The cost of interest rates used in MAI’s calculations is over 5 years.

The MAI is the think-tank for the Malaysian automotive industry.

Madani notes also that the price of subsidised RON 95 in Malaysia was one of the lowest in the region at RM1.90 per litre. Comparatively, the cost for the fuel in Thailand is RM3.80 per litre, Indonesia (RM3.35 per litre), Singapore (RM5.10 per litre), Vietnam (RM3.60 per litre) and the Philippines (RM3.20 per litre).

“In terms of road tax, we are also quite competitive in Asean. Malaysia is still cheaper compared with countries such as Thailand and Indonesia and comparative to Vietnam and the Philippines,” he says.

Perusahaan Otomobil Kedua Sdn Bhd managing director Datuk Aminar Rashid Salleh says Malaysians are blessed to have their fuel subsidised.

“We have low fuel prices and interest rates. All of these factors have contributed to Malaysia’s low cost of vehicle ownership.”

Madani points out that over a five-year period, the average road tax and insurance in Malaysia was among the lowest in the region, costing RM1,990 and RM15,310 respectively.

The five-year cost of road tax and insurance in Singapore was the highest at RM13,779 and RM39,806 respectively, compared with Indonesia (RM9,186 and RM22,965), Thailand (RM2,297 and RM33,682) and the Philippines (RM1,531 and RM14,238).

When comparing vehicle prices, especially those of popular international marques such as Toyota, Honda and BMW, Madani points out that prices in Malaysia were still lower compared with countries such as Singapore and Vietnam.

According to data from the MAI, a 1.5-litre Toyota Vios (as at September 2012) costs RM87,313 in Malaysia but costs RM88,456 and RM303,136 in Vietnam and Singapore respectively. The Vios is cheapest in the Philippines at RM60,271.

A brand new 1.5-litre Honda City meanwhile retails for RM88,443 locally and costs RM106,090 and RM295,800 in Vietnam and Singapore respectively and lowest in the Philippines at RM61,472.

The BMW 3 series, a popular premium model that is represented in most Asean countries, costs RM238,800 in Malaysia. It costs RM248,200 and RM541,200 respectively in Vietnam and Singapore. It costs the least in Indonesia, retailing at RM191,900.

However, when taking into account the vehicles’ selling price, down payment and loan repayment (including interest rates), road tax and insurance, as well as the fuel prices of the different countries, the total vehicle cost of ownership for a 1.5-litre Toyota Vios is RM130,382, which is the second lowest in the region after Philippines, where the total vehicle cost of ownership is RM128,933.

Total vehicle cost of ownership for the Toyota Camry (2.5-litre) in Malaysia is also second lowest in the region at RM243,182. The total vehicle cost of ownership for the Toyota Altis (1.8-litre) in Malaysia is however the cheapest in the region at RM163,973.

After the Philippines, Malaysia also boasts the second lowest total vehicle cost of ownership for the Honda City (1.5-litre), Civic (1.8-litre) and Accord (2.4-litre) models in the region. Malaysia also has the lowest total vehicle cost of ownership for the BMW 3 series.

By EUGENE MAHALINGAM eugenicz@thestar.com.my

IMF aid to Europeans stirrings of resentment

Members feel Eurozone countries aren't willing to swallow the necessary tough medicine

Critical role: Last month, European Central Bank president Mario Draghi (right) gave the International Monetary Fund, headed by Christine Lagarde (left), an important new task: requesting that the Fund keep an eye on the behaviour of countries like Spain if the bank took measures to contain their borrowing costs. - PHOTO: REUTERS

IT IS one of the ironies of the eurozone crisis: the Europeans who have long dominated the International Monetary Fund (IMF) are now the ones borrowing its money and swallowing its advice.

The IMF, traditionally a lender to poor countries, now devotes more than half of its financial resources to the eurozone. Moreover, the fund and its managing director, Christine Lagarde, have emerged as the taskmasters that European leaders seem to need to flog them towards a solution to the crisis.

The Fund's critical role in Europe has revitalised the organisation's claim to relevance in world affairs. Last month, Mario Draghi, president of the European Central Bank (ECB), gave the Fund an important new task: requesting that it keep an eye on the behaviour of countries like Spain if the bank took measures to contain their borrowing costs.

"The ECB wants an independent observer," said Manuela Moschella, an assistant professor at the University of Turin who studies the IMF. ''They want someone who can blow the whistle and say what is going on.''

But there is also resentment among some of the 188 countries that belong to the fund and supply its financial firepower. These discontents are likely to surface in Tokyo when the I.M.F. and the World Bank hold their annual meetings, which were to start Tuesday.

The United States and Canada, among others, have objected to the shift of resources to Europe at the same time that European countries have blocked changes that would give emerging countries a greater voice in making I.M.F. decisions.

Tough pill to swallow

Canadian leaders, in particular, have said that countries whose people live on a few dollars a day should not be asked to help maintain the European welfare state.

''The feeling is that the Europeans don't want to swallow the tough medicine,'' said Bessma Momani, a professor of political science at the University of Waterloo in Ontario. There is, she said, ''a more general sense that European society and way of life are passé.

''Before the beginning of the financial crisis in 2008, the fund provided almost no financial assistance to Europe. Now resources committed to the European Union, including Greece and Portugal, account for 56 percent of the I.M.F. total - (EURO)110 billion, or $143 billion.

The first European countries to seek I.M.F. help in recent years were former Soviet Bloc countries, like Latvia and Hungary in 2008, both of which are members of the European Union. The I.M.F. also played a main role in the Vienna Initiative in 2009, in which the European Union and commercial banks cooperated to prevent the collapse of the financial systems in Eastern Europe.

Management of the I.M.F. has long been dominated by Europeans, leading to accusations that the region is now getting preferential treatment. Since its founding in 1946, all of the fund's managing directors have been European.

''There is at least the suspicion that the European members will get easier terms'' for financing, Ms. Moschella said.

''This is really a threat to the credibility of the organization. I think the I.M.F. has behaved correctly, but the suspicion is there.

''European countries continue to contribute more money to I.M.F. coffers than they take back in loans. Germany's quota, or maximum financial commitment, is $14.6 billion, while France's is $10.7 billion. The largest contributor is the United States, with a quota of $42.1 billion out of a total for the fund of $238 billion.

Officials at the fund argue that the euro zone crisis has become a threat to the global economy, including poorer countries, and it is in everyone's interest to fix it. As members of the I.M.F. and financial contributors, European countries have as much right to ask for help as other members.

''When there are systemic crises that affect other countries in the world, it is natural for the fund to be involved,'' said Reza Moghadam, director of the fund's European department.

''The fund has huge depth of expertise in crisis management,'' Mr. Moghadam added. ''We have dealt with a lot of crises in the past, and there is huge institutional knowledge.

''Many analysts agree that there is no other organization with the clout, money or expertise to serve as outside arbiter to quarreling euro zone members.

''Expertise and impartiality - that's what they bring to the table,'' said Carl B. Weinberg, chief economist at the research firm High Frequency Economics in Valhalla, New York. ''They know how to walk into a government treasury and look at the books and know what they're seeing.'' Mr. Weinberg, as a banker earlier in his career, worked with the I.M.F. on debt restructuring programs in Mexico and other countries.

Ms. Lagarde has helped Mr. Draghi and U.S. leaders put pressure on European officials to move more aggressively to fight the crisis.

 European firewall

During a speech in Washington late last month, Ms. Lagarde beseeched European leaders to ''implement the European firewall - notably the European Stability Mechanism; implement the agreed plan for fiscal union; and, at the country level, implement the programs that are essential for growth, jobs and competitiveness.

''If, as expected, Spanish leaders ask for help from the European Central Bank, the I.M.F. would monitor whether the country kept promises to overhaul the economy and contain government spending. The E.C.B. does not want to take the risk of buying Spanish bonds, a way of lowering the country's borrowing costs, without such conditions.

The euro zone crisis has also presented the I.M.F. with unprecedented organizational challenges. Instead of dealing with one country, it must deal with the 17 members of the European Union that use the euro. They frequently do not agree, and decision-making is slow. In overseeing lending and restructuring programs in Greece, Ireland and Portugal, the fund has shared authority with the E.C.B. and the European Commission, with the three having come to be known as the troika.

''The fund's relationship with Europe is more complicated than anything it has ever been involved in,'' said Edwin M. Truman, a senior fellow at the Peterson Institute for International Economics in Washington.

While he said the fund had done a ''reasonable job'' in Europe, Mr. Truman also called the I.M.F.'s involvement on the Continent a ''political subterfuge'' because the euro zone countries were effectively outsourcing responsibilities they should be taking on themselves.Some observers say that European countries made the fund's task more difficult because they hesitated too long to ask for help, for reasons of pride.

''We should have let the I.M.F. in earlier in Greece,'' said Erik Berglof, chief economist at the European Bank for Reconstruction and Development. ''We could have maybe had an earlier solution to the Greek problem and not allow it to grow in magnitude before it was addressed.

''There is a risk that European leaders will repeat the same mistake in Spain, waiting to call in the I.M.F. until the crisis is acute. No national leader likes to take orders from an outside institution, especially in Europe, where countries are not used to being charity cases. The stigma and loss of sovereignty are likely reasons that Prime Minister Mariano Rajoy of Spain has delayed asking for help.The fund has learned from its own mistakes in places like Asia that too much austerity can be counterproductive, but was not always able to apply that experience. In Greece, for example, Germany and other northern countries insisted on a strict austerity program.''The I.M.F. has learned a lot how to design programs and structural reform measures and how to embed them in the local political system,'' Mr. Berglof said. ''That experience the European institutions didn't have from the beginning.

''Though the I.M.F.'s presence in Europe may not please everyone, it is likely to continue growing. No other institution, even the E.C.B., has the political independence or expertise needed to oversee restructuring programs in a country like Spain. Canada and other countries that resent paying for a European bailout are not likely to block one altogether.

Said Mr. Berglof of the E.B.R.D., ''There is a broader constituency that has a very strong stake in the resolution of the economic problems in Europe.

Political uncertainty

''The International Monetary Fund is cutting its global economic forecast yet again, calling the risks of a slowdown ''alarmingly high,'' primarily because of policy uncertainty in the United States and Europe, Annie Lowrey reported from Washington.

It foresees global growth of 3.3 percent in 2012 and 3.6 percent in 2013, down from 3.5 percent this year and 3.9 percent next year when it made its previous report in July. New estimates suggest a 15 percent chance of recession in the United States next year, 25 percent in Japan and more than 80 percent in the euro area.

Financial market stress, government spending cuts, stubbornly high unemployment and political uncertainty continue to hamper growth in high-income countries, the fund said. At the same time, the emerging-market countries that fueled much of the recovery from the global recession, like China and India, have continued to cool off, with global trade slowing.

By Jack Ewing, The International Herald Tribune