There would be a contingency package to insulate Malaysia from any adverse impacts of the trade dispute

by RAHIMI YUNUS/ pic by HUSSEIN SHAHARUDDIN

THE government plans to introduce contingency measures in the upcoming Budget 2020 if the US-China trade war worsens.

Finance Minister Lim Guan Eng (picture) said the measures are to shield Malaysia from adverse impacts of the trade dispute.

“We are going to have contingency measures in the event the trade dispute escalates or worsens. There would be a contingency package to insulate Malaysia, by as much as possible, from any adverse impacts of the trade dispute,” Lim said at the National Tax Conference 2019 (NTC) in Kuala Lumpur yesterday.

China has weakened the yuan against the greenback to beyond seven per US dollar in a retaliatory move to the US President Donald Trump’s latest tariff threats.

The Chinese yuan last crossed the seven-level against the dollar during the global financial crisis in 2008, according to Reuters.

China has also told its state-owned corporations to halt the import of agricultural products from the US.

These actions were in response to Trump’s recent announcement to impose a fresh tariff of 10% on an additional US$300 billion (RM1.25 trillion) of Chinese goods, effective Sept 1, 2019.

In May, Washington hiked tariffs from 10% to 25% on US$200 billion in Chinese imports that were first levied.

“Any actions by our main trading partners will have spillover effects on Malaysia, whether it is from the US or China,” Lim said.

The government will table Budget 2020 on Oct 11.

Meanwhile, Lim said Putrajaya is not going to introduce the inheritance tax in the upcoming budget.

On the tax reforms front, Lim pointed out that the Inland Revenue Board (IRB) must focus to become a service-oriented entity and keep abreast with digitalisation trends.

He said the IRB will have to revisit its work processes to adapt to the fast-changing economy.

Earlier in his opening speech for the NTC 2019, Lim said the government is reforming its tax system to make it fairer and more efficient to achieve the Shared Prosperity economic agenda.

“Taxation is an important policy tool to encourage sustainable and equitable economic growth,” Lim said.

“In this context, it is befitting that this year’s NTC is themed ‘Economic Prosperity and Taxation’.

“The nature of the domestic economy is changing and this requires a re-look at the application of tax laws. The IRB will have to revisit its work processes to adapt to the new world,” he said.

Commenting on the local economy, the minister is optimistic that economic growth for the second quarter (2Q) would be sustainable, in line with the projection of at least 4.6% this year.

Drawing a comparison with Singapore, Lim said the situation differs in Malaysia as the local economy is showing signs of resilience amid the US-China trade dispute.

“The Malaysian economic resilience could be seen in its unemployment rate, which has fallen to 3.3% in May 2019 from 3.4% in April 2019. The stable unemployment rate of 3.3%-3.4% for the January-May 2019 period indicates a healthy labour market, as well as strong economic prospects,” he said.

“Furthermore, approved foreign direct investment (FDI) across all sectors for the 1Q of 2019 jumped 73.4% year-on-year (YoY) to RM29.3 billion from RM16.9 billion, driven by a 127% YoY surge in approved manufacturing FDI to RM20.2 billion from RM8.9 billion previously.”

The government is also confident that it can reduce the fiscal deficit further to 3.4% of GDP this year, as promised.

The NTC 2019 is jointly organised by the IRB and the Chartered Tax Institute of Malaysia.