KUALA LUMPUR (Oct 16): Rubber glove manufacturers are hoping Oct 23's Budget 2016 announcement will include lower corporate tax rate to increase the country's competitiveness.

They said even though effective from year of assessment 2016, Malaysia's standard corporate tax rate will be reduced by 1%, from current 25% to 24%, the tax rate is still high compared with other Southeast Asian countries.

“The 2016 corporate tax rate of 24% is relatively high, in comparison to neighbouring countries like Singapore (where it is 17%) and Thailand (where it is 20%). We suggest that the corporate tax rate be reduced gradually, to maintain Malaysia’s competitiveness in the region,” Top Glove Corp Bhd chairman and founder Tan Sri Lim Wee Chai told theedgemarkets.com.

Lim also hopes the government will cut personal income tax to help taxpayers cope with the rising costs of living. The current maximum individual tax rate stands at 25%.

Hartalega Holdings Bhd's managing director Kuan Mun Leong concurred that while Southeast Asia remains the most attractive investment destination for glove manufacturing, Malaysia has one of the highest corporate tax rates.

He hopes to see a reduction in the corporate tax rate to one that is comparable with neighbouring countries.

Both Lim and Kuan also hope for more attractive investment incentives to promote continued reinvestment by glove companies in the country.

Lim opined the government should provide incentives and reinvestment allowance to facilitate mergers and acquisitions and expansion of businesses.

“We hope the government will extend this tax incentive to cover the acquisition of local companies as well, to encourage businesses to expand their operations,” said Lim.

Presently, a local manufacturing company is given a tax deduction equivalent to 20% of the acquisition cost incurred for five years (for applications received by the Malaysian Investment Development Authority between July 3, 2012 and Dec 31, 2016) for the acquisition of at least a 51% equity interest in a foreign firm.  

“We also hope the government will consider allowing existing companies which have already utilised the 15 consecutive years, to continue enjoying this benefit indefinitely, as long as they consistently and aggressively pursue expansion and modernisation,” Lim added.

Lim also wants to see the upcoming budget addressing the country’s infrastructure to provide a conducive environment for businesses. "We hope to see a substantial allocation for infrastructure development expenditure, especially for water and electricity, which are essentials for most industries and businesses."

Meanwhile, Hartalega’s Kuan pointed out that the government should provide more investment incentives in the areas of innovation and technology.

“Malaysia is the world’s largest glove producing country. The industry is working relentlessly towards moving up the technology ladder, through automation and product innovations. These efforts require huge capital commitment,” Kuan told theedgemarkets.com.

He cited the payback for investing in a glove manufacturing plant as an example, saying what previously took five years, could take up to eight years now, due to increased investments in more advanced production technology.

“Such incentives should also recognise leaders in the sector who are supportive of the government’s Economic Transformation Programme, especially in the areas of innovation and technology,” said Kuan.

On the weakening ringgit, Kuan said the stability of local currency is crucial for businesses.

Year-to-date, the ringgit has fallen 18.8% in value against the US dollar. As at 4.27pm, the ringgit was trading down 1.38% at 4.1783 against the greenback.

“Although our sales proceeds are in US dollars, at the same time, the recent volatility of the ringgit makes it more challenging to determine the pricing of products,” he said, adding Hartalega keeps a close watch on the effect of the prolonged weakness of the ringgit, which affects the cost of living of its employees, and directly and indirectly impact the group’s business costs.

“The weaker ringgit against the US dollar has a negligible impact, as our sales are primarily in US dollars. However, it does not have tangible effect on the group, as we have hedged our sales proceeds,” said Kuan.

For Top Glove, Lim said the weakening ringgit is generally good for the group, which reported record profits in the financial year just ended Aug 31, as the group receives proceeds in US dollars and its costs are mainly in ringgit.

“However, we do not depend on tailwinds like this, which are temporary and not within our control. The only way to manage rising costs and ensure we continue to do well, is to continue to focus on improving our quality, efficiency and cost-saving by working harder, smarter and faster, and investing in research and development and innovation,” he added.

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