KUALA LUMPUR, Oct 9 — Malaysians may soon have to pay more for their favourite tipple and sweepstakes as Putrajaya is set to increase the so-called “sin tax” on gambling and alcohol in Budget 2014, Maybank Investment Bank (IB) has predicted.
As Putrajaya goes all out to tackle its chronic budget deficit, the research house expected that the most direct option to boost its revenue would be to hike taxes that will inevitably be passed on to the consumers.
“The tobacco industry is already hit by an off-budget 14 per cent hike in excise duties which prompted the industry players to raise cigarette prices by a hefty RM1.50 per pack of 20 effective September 30, 2013,” it said in a Monday report.
“Eyes will now be on the brewery and gaming sectors, although our Equity Research Team takes the view that brewery sector will be next in the firing line, and is less sanguine about the prospect of gaming tax hike.”
Last week, British American Tobacco (BAT) Malaysia confirmed a price increase of at least RM1.50 for its range of cigarettes that it blamed on a “drastic” and “excessive” 14 per cent increase in tobacco excise recently.
Maybank IB expected a similar increase to duties for breweries, which it said would affect number of sales and increasing investors’ wariness towards the sector in the near term.
The excise hike would increase the price of Carlsberg Brewery Malaysia Bhd’s brands compared to rival Guinness Anchor Bhd, which could potentially reduce further the former market share of around 40 to 44 per cent, it said.
But Maybank IB also acknowledged that the increase will do little in curbing alcohol drinking, as the excise is charged irrespective of alcohol content, effectively taxing hard liquor with higher alcohol content less.
“Based on the tobacco companies’ trend, we think the brewers will be compelled to pass on the higher government levies to consumers. We estimate that if excise is hiked 14 per cent, like it was for cigarettes, prices would rise 5.8 per cent on average while if a 20 per cent rise is imposed, we could see an average rise of 8.2 per cent,” the report explained.
Malaysian brewers are currently subject to three types of taxes: excise tax (RM7.40/L on beverage volume), a 15 per cent value added tax, and 5 per cent of sales tax.
Maybank IB also predicted that 4-digit sweepstakes, or number forecast operators (NFO), would most likely be taxed higher rather than casinos, as the latter will drive high rollers away to overseas casinos.
It also noted that the casino tax rate in Malaysia is already at a regional high, with Malaysia’s sole casino, Resorts World Genting, levied at 25 per cent of its gross gaming revenue, contributing up to RM1.2 billion to Putrajaya last year.
However, the research firm conceded that an increase in gaming tax is unlikely in the near term, as statutory duties were last raised in June 2010 and were not announced during the Budget.
Malaysia has embarked on a series of fiscal consolidations, starting with raising the pump price of RON95 petrol and diesel by RM0.20 per litre starting from September 3, to RM2.10 and RM2.00 per litre respectively.
The subsidy cut was announced by Putrajaya following global ratings agency Fitch which revised Malaysia’s sovereign debt outlook from “Stable” to “Negative” in July.
Maybank IB also predicted last month that gas and electricity subsidies are likely to be next following the fuel subsidy cut.
In its daily report, Maybank IB had predicted further subsidy rollbacks since the total savings from the Performance Management and Delivery Unit’s (PEMANDU) Subsidy Rationalisation Roadmap in 2010 has been much less than intended.
On Sunday, Domestic Trade and Consumer Affairs Datuk Hasan Malek hinted that Putrajaya may slash subsidies for flour and sugar in Budget 2014.
Putrajaya has stated that it aims to reduce the budget deficit to 4 per cent this year and gradually to 3 per cent by 2015.
