Pay for your Sins

The cigarette smokers are paying up big time. BAT has seen its share price eroded. The next sin to be taxed appears to be on not so hard drinks including your can or jug of beer. See Carlsberg shares going south when the news come to the fore.

It's gonna be the way they increase the price of petroleum. First to move was rice, moving up in April and then in July. Then it was flour. And they are not even sin commodities. Expect the additional tax on 'soft' liquor and all sundry spirits, especially beer, either in September or even earlier to add to the government coffers to help them pay for the new salary hike for civil servants.

Similarly, one should anticipate the chances of more tax on the gaming sector as well. Number Forecast operators (NFO) like BJ Toto, Magnum and Tanjong should get ready to take this on their bottom line for 2007 and the impact on their dividend yield.

However, OSK Investment Bank equity research analyst, Keith Wee is of the opinion that NFO will be spared this time. The last time the government revised pool betting duty was in December 2002. It was standardised to 6% for all operators, benefiting BJ Toto which was paying 12%, by half. So if they should want to increase it, I think it will be marginal. Keith feels that taxing the NFO more will only encourage the resurgence of illegal operations and consequently trimmed down tax revenue from NFO.

Gaming tax on Genting and Resorts World may be less impactful because tax measures hardly affect high rollers. Anyhow, an incremental tax may be useful towards the government coffers as Resorts is benefiting from the government's Visit Malaysia Year 2007 campaign.

Heartsong