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KUALA LUMPUR (Nov 4): An unexpected tax to be imposed on the Malaysian glove sector will be difficult to enforce, CGS-CIMB Research opined, adding that if this materializes in the next Budget 2021, it would likely be a one-time collection. . or payment to the government.
In a note today, CGS-CIMB said the difficulty stems from a lack of standardized glove prices due to the variety of product types, specifications and grades, as well as the intended target markets.
However, if this happened, it would have negative implications for the sector, particularly for its long-term prospects, he said.
CGS-CIMB maintained an “overweight” in the rubber gloves sector.
The Malaysian government is scheduled to present the 2021 Budget on Friday (November 6). There has been growing concern that the government will implement some form of windfall tax on glove companies to shore up its coffers amid continuing economic uncertainties.
This is due to the recent “supernormal” gains enjoyed by the glove sector, given the increase in demand and average selling prices (ASP) of gloves due to the Covid-19 pandemic, CGS-CIMB noted.
“For illustrative purposes, we conducted a sensitivity analysis of the potential impact of a higher corporate tax rate. We found that a 5% increase in the corporate tax rate could reduce the sector’s net profits in 2020 by 6.5% and allow the government to collect an additional RM 593 million in taxes by 2020.
“According to our estimates, the glove companies we cover are already scheduled to pay a total corporate income tax of RM 2.8 billion and RM 4.7 billion for 2020 and 2021. [respectively], according to our forecasts, “he said.
If a windfall tax materializes, CGS-CIMB said it believes Malaysian glove makers may choose to expand abroad.
This could result in potential lost opportunities for the government due to lower future investment by glove players and their indirect benefits, he said.
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