Regional Notes 2018.05.18

Japan seeks private sector’s help with blowout health costs

Faced with an aging crisis that’s projected to push up heath-care spending by more than 50 percent in the decade through 2025, the economy ministry is leading efforts for local governments to draw on the expertise of private companies.

The focus in Japan is preventive medicine, which could in time cut trillions of yen from government spending, according to Shinichiro Okazaki, an official overseeing the effort at the economy ministry in Tokyo. The nation’s annual health-care spending is forecast to reach 54 trillion yen ($500 billion) in 2025, according to the health ministry.


Short-term transitional issues expected in shift back to SST

“GST as you know covers everyone, retailers and traders. On the other hand, sales tax only covers manufacturers while services tax covers certain prescribed services such as professional services, so there must be a thought process on the transition to SST. Also there are still GST issues hanging around such as liabilities to be settled, so having transitional rules in place is going to be a challenge, and it is not something that can be done overnight.”

Meanwhile, there is the issue of how the government would make up for the shortfall in revenue with the abolishment of GST. Last year alone, some RM44 billion was collected in GST revenue. SST, according to chairman of the board of trustees of the Malaysian Tax Research Foundation SM Thanneermalai, used to only contribute about RM17 billion to the government’s coffers before GST came into force on April 1, 2015.

“That, to some extent, resulted in discontent for many, particularly in the B40 group, who were not previously taxpayers from the outset. Despite the fact that there are a multitude of exempt and zero-rated items, GST still translates into a significant amount for the B40 through its impact on prices, so the abolishment is most certainly a boon for this group of Malaysians. But it is left to be determined if the abolishment of GST will result in retail prices being adjusted downwards and in what manner and form.”


Malaysia sees favorable growth outlook as policy risks mount

The government must still outline how it will raise enough revenue to fill the GST gap in order to keep the budget deficit under control. The Finance Ministry said on Thursday the move will be “cushioned by specific revenue and expenditures that shall be announced soon,” with plans also to re-introduce a sales-and-services tax.

A revenue squeeze may prompt the government to cut back on spending, while a review of infrastructure projects could put a halt on construction, curbing growth in the economy. “It’s encouraging to see that the new government is already taking action to try and rationalize unnecessary and unproductive government expenditure,” said Goh. “We think that would actually help in keeping the fiscal balance in check.”

The gridlocked streets of Manila have become the latest battleground for Grab, despite the fact that it controls more than 90 percent of the ride-hailing market in the Philippines. With just 35,000 vehicles on its app to service as many as 600,000 requests a day, Grab has struggled to keep up with demand in areas like Manila, where an estimated 19 percent of commuters use ride-hailing, nearly double the average in other Southeast Asian capitals, according to Boston Consulting Group Inc. The challenge has created an opening for startups like Hype Transport Systems Inc. and Ipara Technologies and Solutions Inc., both of which plan to start services this month.

A Saudi-backed Asia refinery is going to be a fuel juggernaut

“The immediate impact from RAPID will lead to more Malaysian exports of diesel and jet fuel, while also reducing the need to import as much gasoline,” said Joe Willis, a senior research analyst for refining and oil products at Wood Mackenzie Ltd. in Singapore. “For middle distillates, Johor is conveniently located next to the Singapore storage hub.”

The RAPID project, operated by Malaysia’s state-owned Petroliam Nasional Bhd, known as Petronas, is due to start operations in 2019 with 300,000 barrels a day of crude-processing capacity. That’s a massive increase for the Southeast Asian country, which has a total 660,000 barrels of daily capacity now, according to Willis.

Still, Chin is hopeful the overall impact will be limited in the long-run. When RAPID reaches full utilization in early 2020, Asian refiners will be scrambling to meet a bump in appetite for the fuel as maritime rules that start in 2020 push shippers to replace dirtier fuels with cleaner ones like diesel, Chin said.

“With new mega refineries starting up in China and Saudi Arabia by the first quarter next year, there could be a brief window of weakness in diesel cracks before IMO effects kick in,” he said, referring to the upcoming maritime regulations to be implemented by the International Maritime Organization.


Willowglen sees challenging year ahead

“This year, I am not too sure, it could be quite a testing year. We should be all right in the longer term, [but] in the immediate term, there [could be] not much improvement compared [with] last year, it could be even worse.” This is due mainly to issues in project execution and delaying of awards from clients who are still resolving technical issues, especially those that are infrastructure-related.

While more than 70% of its revenue was contributed by its primary market of Singapore, with the balance coming from Malaysia, the group said it will continue its exploration of business opportunities elsewhere, especially in Vietnam, where it commenced operations a year ago. He assured that the group will not exit the Indonesian market — where it is involved in trading as well as the provision of hardware and software consulting services — but instead work on restrategising operations there to improve efficiency.

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