Dispatch (Asia edition)
| by Peta Tomlinson, Nazatul Izma Abdullah, Sonia Kolesnikov-Jessop 06 Jun 2007 Topic: News |
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China's move to remove tax breaks for foreign-invested companies is proving a boon for local accountants. With new laws likely to be implemented before the next tax year (which starts on 1 January 2008), accountancy firms are reporting a rush of clients seeking advice on the new income tax system. Pauline Zhang, tax partner at Deloitte's in Beijing, says her tax consulting business has been up by at least 30% in the lead-up to March, when the new income tax code was due to be passed by the National People's Congress. She said enquiries are coming equally from foreign companies, many of whom will lose substantial tax breaks they have enjoyed for over two decades, and local businesses, who will now be able to compete on a level playing field. Much of this extra work has involved tax planning strategies to help foreign firms reduce the burden they may face in the future. As a result of the new code, many foreign-invested enterprises (FIEs) would lose the honeymoon of tax holidays, plus a reduced tax rate, offered by China's government to entice inward investment. This compares with domestic companies' 33% tax rate, with fewer benefits. Even though the new income tax code would offer existing FIEs a 'grandfather clause' of around five years' transition, taxes must be adjusted, as it is a requirement of China's World Trade Organisation membership that foreign and domestic enterprises are treated equally. Given the need to cool China's economy, analysts expect that the new unified tax rate will be around 25%. Joseph Lee, a tax partner at Ernst & Young China, believes higher taxes would not deter foreign investment because even the new rate is 'still on the low side' compared with other Asia-Pacific countries. China's domestic consumption remains high, and the economy continues to grow rapidly, he said. In certain industries which China needs, such as investment in green energy, high technology or infrastructure, tax breaks will continue to be enjoyed by both FIEs and, for the first time, local companies as well. The new code will be good for China's accountancy practices, which will enjoy a reduced tax rate, Lee said. The market will be more competitive, as foreign and local firms will now be governed by the same law. 'Overall it should be a healthy and prosperous (market) for everybody.' IRAS pilot looks to simplify tax filing The Inland Revenue Authority of Singapore has embarked on a pilot project to eliminate tax return filing for two groups of taxpayers this year. The first group of taxpayers, about 35,000 of them, are those with dividend income of $20,000 or less who are therefore eligible for a tax refund on their dividends. IRAS will calculate the tax refund for them and send them their Notice of Assessment without having them file a tax return. The second group of taxpayers, about 10,000 people, are those who have a straightforward tax position - where their salary information is transmitted by their employers to IRAS under the auto-inclusion scheme for employment income and where their claims for personal relief have remained unchanged for the past two years. At present, more than 4,000 private companies - as well as over 50 statutory boards, and all government departments and town councils - are in this auto-inclusion scheme. Under the pilot scheme, IRAS will compute the taxpayer's income and reliefs and send them a Notice of Assessment. People covered by the scheme will still be able to take a look at the pre-filled information at IRAS' e-filing system if they so wish. IRAS is also introducing additional assistance for taxpayers who need help with tax filing, such as stationing tax officers in community clubs to assist with e-Filing. Last year, about 916,000, or three in four taxpayers, filed their taxes electronically. The tax authority has also introduced a new SMS [text message] service for those who are unsure whether they need to file a tax return. Taxpayers can now SMS their details and will receive an SMS reply advising them on whether they need to file a return or not. IRAS said it would collect feedback from the taxpayers involved in the pilot run, before considering whether to extend the system next year. 14 companies get CDM executive board registration Two local companies out of the 14 registered with the Clean Development Mechanism (CDM) executive board have started selling their carbon deposit credits or certified emission reduction (CER) credits. The two companies have a total of 320,000 tonnes of carbon dioxide emission per annum, Malaysia Energy Centre (PTM) chief executive officer Dr Anuar Abdul Rahman said. However, he did not name the two companies. CER are tradeable and provide an efficient way to reduce greenhouse gas emissions (GHG emission) by giving them a monetary value. One credit is equivalent to one tonne of carbon dioxide emission. Buyers of the carbon credits are governments, energy hungry companies, petrochemical companies and banks (for trading purposes). Presenting the progress of CDM in Malaysia in conjunction with the official launch of EcoSecurities Malaysia Sdn Bhd in Kuala Lumpur on March 8, Anuar said 22 companies had applied to register with the CDM executive board since 2002. Most companies certified by the CDM executive board are involved in biomass projects. These projects generate 8,851 tonnes to 380,934 tonnes emission reduction per annum. He added Malaysia had the potential to generate 12 million to 13 million tonnes of CER a year but the potential could be higher when the petrochemical and power generation companies adopt the CDM projects. EcoSecurities group president and chief operating officer Dr Pedro Moura Costa said CER was traded between five Euro (RM23.08) and 10 Euro (RM46.15) Euro per tonne equivalent of carbon dioxide. However, the trading value of the CER would also depend on the risk leverage between the seller and buyer. The CER could help companies reduce the payback time for their carbon emission reduction projects. He said the returns could be between one and seven years depending on the size of the projects. Dr Costa said EcoSecurities, which was listed on the London Stock Exchange Alternative Investment Market, was one of the industry's largest and most diversified portfolios of carbon emission reduction projects. He added that the company could help Malaysian companies to develop and structure their carbon credit projects. 'EcoSecurities will engage with Malaysian firms for the creation of carbon credits with no upfront costs to the assisted companies. A unique value proposition of EcoSecurities is that it does not charge project developers any upfront fees, until the carbon credit revenue is realised,' he said. EcoSecurities country director, Veronique Bovee, said assistance covers the CDM development cost for the client up to the moment the projects starts to generate cashflow. These cost ranges from RM250,000 to RM1 million. She said the company provides additional financing for viable CDM projects by financing forward contracts to purchase the CERS under an Emission Reduction Purchase Contract (ERPA) and direct investments in projects such as co-composting projects in the palm oil sector in Malaysia. 'In both cases, EcoSecurities bears all the CDM-related costs and risks and client benefits from the revenues generated from the project,' she added. EcoSecurities Malaysia targets to contract 3% of the group's overall CER target in 2007. The company has signed contracts for 15 projects with the potential to generate 3.25 million carbon credits in Malaysia until 2012, Bovee said. EcoSecurities portfolio covers 374 projects in 36 countries with potential to generate up to 163 million carbon credits through 2012. Increasing demand for Syariah-compliant instruments in the global financial markets has made sukuk or Islamic bonds one of the fastest growing structured products both locally and abroad. In Malaysia alone, a total of 56 new corporate sukuk deals - with an aggregate value of RM39.9bil - were announced last year, said Rating Agency Malaysia Bhd (RAM), accounting for 70% of the domestic market's RM56.8bil rated corporate bond issues. Power plants, infrastructure projects and project financing are some of the sectors that have tapped the Islamic bond market for financing, while plantations have also emerged as a new asset class. In future, sukuk issues could be extended to areas such as education, services and real estate. Bank Negara Malaysia's plan to allow the issuance of non-ringgit sukuk in Malaysia is expected to further promote the issuance of the instruments locally. Currently, Malaysia dominates the global sukuk market, commanding a 67% share. But stiffer competition means that Malaysia cannot afford to rest on its laurels. With the emergence of many new players in the sukuk market, local issuers need to devise more innovative and appealing products to meet the growing appetite of global investors. Other challenges to drive the global acceptance of sukuk as enumerated by the Malaysian Rating Corporation Bhd (MARC) in The Edge include the need for an established market based benchmark yield curve for sukuk as well as legal mechanisms to cater for bankruptcy, security enforcement and financial restructuring. Securities Commission chairman, Datuk Zarinah Anwar, noted that the increasing internationalisation of the sukuk market means that international standards of compliance, transparency and governance must be complied with. Australian corporates are crying out for finance professionals with specialised skills, offering a range of sweeteners in return. Scott Stacey, general manager for recruitment firm Hudson in the state of Victoria, says accountants with Sarbanes-Oxley, corporate reporting or International Financial Reporting Standards (IFRS) experience are the hardest to come by, and capable of commanding 'substantial six-figure sums'. Auditors are also in demand due to the growth of corporate governance, although Stacey says this does not seem to correlate with radical pay increases. Rather than offering 'silly salaries' to attract mid-level accountants, larger corporates are more likely to outsource on a project basis to one of the Big Four firms, or put freelancers on short-term contracts (the 'try before you buy' scenario). Some organisations are also offering sign-on or completion bonuses, or the perk most prized by many accountants today: flexibility. Stacey, himself an accountant with 15 years industry experience, says the days of the typical 60-hour week are all but over. 'Adopting a more liberal attitude is very important,' he says. 'No one wants to work 60 hours any more, but 24 or 30 hours, with the ability to work part-time from home, is a definite advantage.' Nigel Barcham, director of Robert Half International ANZ, says 2007 will be a boom year for accountants in Australia, as companies continue to invest heavily in their finance and accounting teams. But he warns of a continuing skills shortage, especially as places such as Hong Kong, Singapore, India, China and Japan are actively recruiting talent from overseas. 'Companies are going to have to focus on more creative retention strategies,' Barcham said. According to Drake International, getting it wrong can be costly. Drake says that failure to attract the right employee is a profit and productivity issue, given it takes on average 18 months to achieve a return on investment from a new employee. In addition, losing a staff member can cost up to 150% of that person's annual salary. Drake advises firms that cannot compete on salary to consider offering non-monetary rewards such as flexible work options, job share, professional development and in-house training. Which all augurs well for the job seeker, says Barcham. 'The good news for those in the finance and accounting industry is that they will continue to be spoiled for choice.' Hong Kong has become the first of the major financial centres to implement the new global banking risk management standards, Basel II, as mandatory. From January 2007, all of Hong Kong's 70 locally incorporated banks have adopted either the Standardised Approach or the Basic Approach to Basel II, as recommended by the international Basel Committee. A half dozen of Hong Kong's largest banks are also working towards adopting the more complex internal ratings based (IRB) approach, with the first approvals expected by year end. Despite the hefty cost and resource burden imposed on them by Basel II, Hong Kong banks had embraced the system, said Simon Topping, executive director of banking policy at Hong Kong Monetary Authority (HKMA). 'Many are part of international banking groups who will be adopting Basel II in their own country, and Hong Kong is one of their biggest markets. Local banks are keen to show they are as good as the big guys.' Basel II will make sure Hong Kong banks' risk management standards are up to global best practice. Yet it goes much further than addressing banks' credit, market and operational risks as covered under the first phase (known as Pillar I risks), Topping said. Equally important are the Pillar II risks, involving interest rates, foreign exchange, liquidity, the business cycle, reputation and strategic risk. Most significant is business cycle stress testing, where banks measure how their business is likely to be affected by changes in economic activity and interest rates. For companies doing business in a region of volatile Asian markets, that gives Hong Kong banks an edge, Topping added. David Marshall, managing director of Fitch Ratings' financial institutions in Asia, points out that Basel II is not suitable for everyone. 'Medium-sized banks are likely to start with the Standardised Approach for credit risk, which is somewhat more complex than Basel I but not vastly so, requiring incremental improvement to risk management systems rather than a radical change,' Marshall said. 'The IRB Approach is clearly much more complex and we expect only a few banks in Hong Kong - in practice the subsidiaries of global banking groups - will start off implementing IRB. We would expect other, local banks to follow them over time as they build up the necessary systems and data.' As Basel II encourages banks to improve their ability accurately to identify and quantify risks, Marshall thinks more will want to comply with its more complex approaches over time. 'Compliance with Basel II will involve making improvements to risk management that banks themselves increasingly see as necessary for them to manage risks effectively and achieve better risk-adjusted returns on their capital.' in brief...
Cordial's bitter aftertaste
Hong Kong tax windfall
Higher penalty for lawyers without practising certificates
Fat cats enjoy their cream
Steady as she goes
Globalised Malaysia
Property Tax Relaxed? | |