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Sunday, October 13, 2019

Malaysia's Tax Budget 2020 highlights

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KUALA LUMPUR (Oct 11): The following are the highlights of Budget 2020:

Malaysian economy

Budget 2020 has four thrusts including boosting economic growth in new economy and digital era, investing in people.
Approved foreign direct investment has inreased to RM80.1 billion in 2018 from RM54.1 billion in 2017.
Proctrated trade war offers Malaysia unique opportunity to become choice destination for FDI with high added value
Overall debts and liabilities ratio to GDP lowered to 75.4% in 2018 from 79.3% in 2017, but is expected to rise to 77.1% as at end-June 2019. This is largely due to the increase in the committed government guarantee to continue to MRT and Pan Borneo Highway, and RM20 billion bailout of Tabung Haji. Govt saved at least RM46 billion in capex from rationalising megaprojects including LRT3, MRT 2 and ECRL.
Malaysian economy to grow at 4.8% in 2020 vs 4.7% in 2019
The government revises Budget 2020 deficit target to 3.2% of GDP, which is slightly higher than the 3% originally announced in Budget 2019.
Lower public revenue in 2020 in absence of Petronas special dividend
Government expects RM26.8 billion SST collection in 2019
Government's tax revenue up 3.4% to RM180 billion in 2019
With weakening growth in government revenue, tax reforms necessary
Higher development expenditure of RM56 billion
Only 1% growth on exports in 2020
Malaysia’s current account surplus to narrow to 1.9% of 2020 GNI
2% inflation in 2020, to be lifted by the introduction of targeted fuel subsidy
Unemployment rate to remain healthy at 3.3% in 2020
Service sector to be the fastest-growing sector of the economy
4.1% growth in the manufacturing sector in 2020
Agriculture sector to grow the slower pace at 3.4%
Stronger growth of 3.7% in construction sector in 2020, vs 1.7% in 2019
Mining sector growth to moderate to 0.3%
Govt will sell assets (approved previously) via competitive bidding to realise their potential; this is expected to generate more than RM3 billion revenue in 2020.

Government

The Bureau of Public Complaints will be replaced by the Malaysian Ombudsman to enhance govt's governance and delivery systems
Govt to move forward with the formation of the Independent Police Complaints and Misconduct Commission (IPCMC) to increase public confidence and trust in police.
Japan Bank for International Cooperation (JBIC) offers to guarantee additional tranche of Samurai bonds with lower interest rate of less than 0.5% compared with 0.63% previously. The federal government plans to issue the bonds early next year. Issuance size to be determined after further discussion with JBIC.
Home Ministry to receive RM16.9 billion boost for 2020.
Allocation for Islamic affairs under PM's Dept increased to RM1.3 billion from 1.2 billion in 2019
Govt has set up National Committee on Investments (NCI), chaired by Minister of Finance and Minister of International Trade and Industry
Allocation for Defence Ministry raised from RM13.9 billion in 2019 to RM15.6 billion in 2020

1MDB

Bandar Malaysia project will now proceed and include a People's Park, with 5,000 units of affordable homes and greater Bumiputera participation. Proceeds from the project will be valued and announced in due course, and will be used to reduce 1MDB's debts.
Govt to pay RM2.4 billion to service 1MDB and SRC International's debt interest in 2019, and a further RM2.7 billion in 2020

Corporate, finance and fintech

Govt will continue to ensure at least 30% of tenders of each ministry are reserved for only Bumiputera contractors
50% matching grant of up to RM5,000 to increase the digitalisation of operations for Malaysian small and medium enterprises (SME)
RM50m allocation proposed to encourage SMEs to engage in more export promotion activities
Govt to provide extra RM50m for SC's My Co-Investment Fund (MyCIF) to assist SMEs that have difficulties in getting financing
Govt to merge Bank Pembangunan Malaysia, Danajamin Nasional, SME Bank and EXIM Bank Malaysia to restructure development financial institutions (DFI)
Govt allocates RM1 billion in investment incentives to attract Fortune Fortune 500 companies and global unicorns
Govt to offer special investment incentive package worth RM1b per year for five years to local companies capable of penetrating overseas market
Additional RM10m allocation to be set aside for MITI to increase monitoring to ensure approved investments are realised
Government evaluating Carey Island development feasibility for next growth phase
Govt intends to develop a 100-acre logistics hub at Special Border Economic Zone at Kota Perdana in Bukit Kayu Hitam to strengthen trade relations with Thailand
National Fiberisation & Connectivity Plan will adopt public-private partnership approach involving total investment of RM21.6b
RM20m allocation for Cradle Fund to train and offer grants to high-impact technology entrepreneurs
Licensing for digital banks to be opened for public consultation by year end. A framework is expected to be released in 1H2020
Digital bank licensing framework will be finalised by Bank Negara and open for application in the first half of 2020
Govt to allocate additional RM50 million to Malaysia Co-Investment Fund (MyCIF) to benefit equity crowdfunding platforms and peer-to-peer (P2P) financing platforms.
Ceiling on Market Development Grant (MDG) by Malaysia External Trade Development Corporation (Matrade) raised to RM300,000. Cap on entry to export exhibitions also raised to RM25,000. RM50 million allocated to encourage SMEs to join promotional activities.

Entrepreneur

RM445m Bumiputera entrepreneur development grant for access to financing, provision of business premises, entrepreneurship training
Govt to provide loans worth RM100m under Small Industries Entrepreneurs Financing Scheme for Chinese community
Govt to provide RM20m in loans under entrepreneur development scheme for Indian community Govt to allocate RM500m as guaranteed facility for women entrepreneurs via Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP)
Skim Jaminan Pinjaman Perniagaan will be enhanced, with the government guarantee raised to 80% of the loan amount while the guarantee fee is reduced to 0.75%. A RM500 million guarantee facility has been set aside especially for women entrepreneurs.
SME Bank will introduce two new funds: a RM200m fund specially for women entrepreneurs, and a RM300m fund to support SMEs with potential to become regional champs
Ministry of Entrepreneur Development to give RM10 million for advisory services and awareness for the halal industry
Tax incentives for venture capital and angel investors will be extended until 2023
Govt jobs worth RM1.3b dedicated for Bumiputera contractors

Internet and tech

Mandatory Standard on Access Pricing (MSAP) has successfully reduced broadband prices by 49% and increased speeds by three times
RM250m will be set aside by MCMC to prepare broadband access via satellite technology to increase connectivity in rural Malaysia, especially Sabah and Sarawak
Matching grant fund of RM25m will be set aside to encourage more pioneer digital projects that benefit fibre optic infrastructure and 5G
RM20m allocated to MDEC to groom local champions in producing digital content
RM50 million grant to develop 5G ecosystem to prepare for 5G transformation worldwide
Smart automation matching grant (up to RM2m) for 1,000 local manufacturers and 1,000 services companies to automate business processes
To boost use of e-wallets, govt to offer one-time RM30 digital stimulus to qualified Malaysians aged 18 and above with annual income less than RM100,000
14 one-stop digital improvement centres to be set up in every state to faciltiate access to financing, development of business capacity
RM10m to be set aside for MDEC to train micro-digital entrepreneurs and technology experts to leverage e-market places, social media platforms
Digital Social Responsibility (DSR) is commitment from business sector to enhance workforce with digital skills needed by society. Contributions from the private sector to the DSR will be given tax
R&D in public sector to be intensified with RM524 million allocation to ministries, public agencies exemptions.
Government to up e-sports allocation to RM20m due to high potential
Green Investment Tax Allowance (GITA) and Green Investment Tax Exemptions (GITE) extended to 2023 in line with sustainable development

Palm oil

Govt has launched palm oil replanting loan fund worth RM550m for smallholders
Govt to implement B20 biodiesel for the transport sector by end-2020. This is expected to increase palm oil demand by 500,000 tonnes per annum.

Rubber

RM200m set aside for 'Bantuan Musim Tengkujuh' to eligible rubber smallholders under RISDA, Lembaga Industri Getah Sabah
RM100 million allocated for Rubber Production Incentive in 2020 to enhance income of smallholders faced with low rubber prices

Agriculture

Allocation for Agriculture and Agro-based Industry Ministry increased to RM4.9 billion, including RM150 million to support plant integration programmes such as for chilli, pineapple, coconut, watermelon and bamboo.
RM855 million allocation under Federal Government Padi Fertilizer Scheme to boost padi yield

Civil servants

Civil servants’ emoluments to exceed RM82 billion
Civil servant pension will cost RM27.1 billion
Civil servants' cost of living allowance or COLA to be raised by RM50 a month starting 2020 for support group, with an additional RM350 million a year
Civil servants will be allowed early redemption of accumulated leaves (gantian cuti rehat) for up to 75 days as replacement pay for those who have served at least 15 years
Govt announces RM500 special payment for civil servants Grade 56 and below. Govt retirees to get special payment of RM250, also extended to non-pensionable veterans
Govt to allocate RM330 million to the Property and Land Management Division under the Prime Ministers Department to repair and maintain the public service quarters. Meanwhile, RM150 million and RM250 million is set aside to repair and refurbish Malaysian Armed Forces family housing units (RKAT) and PDRM quarters.
Fire fighters to get a special allowance of RM200 a month, which will benefit 14,400 personnel under the Fire and Rescue Dept, amounting to RM35 mil.

Highway and tolls

The Cabinet has approved the proposed offer to acquire four highways in the Klang Valleyy – Shah Alam Expressway (KESAS), Damansara-Puchong Expressway (LDP), Sprint Expressway (SPRINT) and SMART Tunnel (SMART) to be funded via Government-guaranteed borrowings.
Citizens to enjoy average 18% discount on all PLUS highways
Effective Jan 1, 2020, toll rates for cars at the Second Penang Bridge will be reduced from RM8.50 to RM7.00.

Public transport

RM450 million proposed to acquire up to 500 electric buses for public transport in selected cities nationwide
Govt intends to proceed with the Rapid Transit System (RTS) between Johor Bahru and Singapore.
It will also invest RM85 million beginning 2020 to ease congestion at the Causeway and 2nd Link by enhancing vehicle and traffic flow through the Customs, Immigration and Quarantine Complex.

Fuel subsidy

Individuals owning not more than two cars and two motorcycles can get fuel subsidy for one vehicle. The qualifying criteria are:

A passenger car with 1,600cc engine capacity and below, or
Any car above 1,600cc must be more than 10 years old, or
A qualified motorcycle must be 150cc and below, or
Any motorcycles above 150cc must be more than 7 years old.

From January 2020, the targeted fuel subsidy or PSP will be launched in Peninsular Malaysia with two eligible categories as follows:

For eligible recipients of the BSH, the petrol subsidy receivable will be RM30 per month for car owners and RM12 per month for motorcycle owners. This subsidy will be in the form of cash transfer, deposited into the recipient's bank account every 4 months. The first payment will be made in April 2020 for the period January to April 2020; and
For all other motorists who are not BSH recipients, they will receive a special Kad95 which allows them to enjoy the fuel subsidy at a discount of 30 sen per litre limited to 100 litres per month for cars or 40 litres per month for motorcycles when purchasing RON95 at the petrol station. The Kad95 will be implemented progressively during the first quarter of 2020.

Taxes

Govt will merge Special Commissioner of Income Tax and Customs Appeal Tribunal into the Tax Appeal Tribunal, to be operational in 2021. Through this, taxpayers unhappy with the decision of IRB director-general or the Customs D-G can appeal
Govt proposes that a new band for taxable income in excess of RM2 million be introduced and taxed at 30%, up 2 percentage point from the current 28%. This will affect approximately 2,000 top income earners in the country.
Govt has repaid GST refunds amounting to RM15.9b to more than 78,000 companies, and income tax refunds of RM13.6b to 448,000 companies and 184,000 taxpayers

Medical and Healthcare

To support local medical device industry, government will introduce an initiative to encourage local producers to upgrade equipment and tools used in public clinics and hospitals, based on a minimum allocation of 30%.
RM227m to be set aside to upgrade medical equipment, and RM95m to renovate infrastructure and medical facilities, like in Hospital Pontian
RM1.6 billion to build new hospitals and upgrade existing ones. The hospital includes Tengku Ampuan Rahimah Klang, Hospital Kampar, Hospital Labuan and the Queen Elizabeth II Hospital, Sabah Heart Centre.
Govt to allocate RM60m for pneumococcal vaccination for all children
RM319m to build and upgrade health and dental clinics and quarters facilities; new clinics will be built in Setiu, Sg Petani, and Cameron Highlands, as well as Kudat and Tawau in Sabah, and Lon San and Sg Simunjan in Sarawak
Health Ministry to get RM30.6 billion allocation, compared to RM28.7 billion under Budget 2019

MySalam

MySalam to be expanded so that those with critical illnesses will get RM8,000 cash; those being treated in govt hospitals can also claim RM50 wage replacement a day for up to 14 days

Islamic finance

Islamic Economic Blueprint to be formulated to position Malaysia as centre of excellence for Islamic finance
Special Islamic Finance Committee to be set up to develop the Islamic finance ecosystem

FELDA

An allocation of RM810 mil for Federal Land Development Authority (Felda) settlers, including boosting their water supply and roadwork upgrades, and programmes to increase their earnings.

Property and housing

RPGT base year for asset purchase revised to Jan 1, 2013 for asset acquired before that date
To reduce supply overhang of condominiums and apartments amounting to RM8.3 billion in the second quarter of 2019, govt will lower the threshold on high rise property prices in urban areas for foreign ownership from RM1 million to RM600,000 in 2020.
Govt to extend Youth Housing Scheme administered by Bank Simpanan Nasional from Jan 1, 2020 until Dec 31, 2021. The scheme also offers a 10% loan guarantee via Cagamas to enable borrowers to get full financing and RM200 monthly instalment assistance for the first two years, limited to 10,000 home units.
Public Sector Home Financing Board to offer free personal accident insurance for up to two years to new government housing loan borrowers
To help those who can't come up with 10% deposit or get financing to buy homes, govt will collaborate with financial institutions to introduce the rent-to-own (RTO) financing scheme, where up to RM10 billion will be provided by the financial institutions, with the governnment supporting via a 30% or RM3 billion guarantee.

This RTO scheme is for purchase of first home up to RM500,000 property price.
Under this scheme, the applicant will rent the property for up to 5 years and after the first year, and the tenant will have the option to purchase the house based on the price fixed at the time the tenancy agreement is signed.

Gaming Industry

To curb illegal gambling, govt proposes a higher minimum mandatory penalty of RM100,000 for illegal gamblers, along with a minimum mandatory jail sentence of six months.

For illegal operators, a higher minimum mandatory penalty of RM1 million and a 12 month minimum mandatory jail sentence will be imposed.

To curb illegal gambling, govt proposes a higher minimum mandatory penalty of RM100,000 for illegal gamblers, along with a minimum mandatory jail sentence of six months.
Starting 2020, total number of special draws for Numbers Forecast Operator (NFO) will be reduced from 11 to 8 times a year..

Employment

Hiring fresh graduates: Two-year pay incentives of RM500 a month. Hiring incentive of RM300 a month.
Incentives to get women into the workforce:

Two-year pay incentive of RM500 a month
Hiring incentive of RM300
Tax exemption for women returning to work will be extended until 2023.

Govt revises Employment Act, including increasing maternity leave from 60 days to 90 days from 2021
Govt proposes to raise minimum wage in urban areas to RM1,200 a month in 2020
Govt to launch Malaysians @ Work initiative aimed at creating better employment opportunities for youth and women, reducing over-dependence on low-skilled foreign workers
Malaysians who replace foreign workers will get a monthly wage incentive of RM350/RM500 for two years, depending on the sector. Employers will get a monthly incentive of RM250 a month throughout the same period.

Tourism

RM25 million allocated to Malaysia Healthcare Tourism Council to strengthen Malaysia's position as the preferred destination for medical tourism in Asean for oncology, cardiology and fertility treatments.
Govt to contribute RM100 million towards construction of new cable car system to Penang Hill
RM1.1 billion allocated to Ministry of Tourism and Culture, of which RM90 million is specifically for VMY2020 promotion and programmes

Sabah and Sarawak

Govt plans to double special alowance for Sabah to RM53.4m and Sarawak to RM32m; this to be doubled further to 106.8m for Sabah and RM64m for Sarawak in five years
RM587 million allocation for rural water projects, of which RM470 million will be for Sabah and Sarawak
RM500 million for rural electrification benefiting more than 30,000 rural households, majority in Sabah and Sarawak

Aid and subsidies

Govt to spend RM24.2 billion on subsidies and social assistance
RM100 million grant proposed for Malaysian Indian Transformation Unit (MITRA) of which 80% will be programme-based
RM57 million provided to Orang Asli Development Department (JAKOA), in addition to RM83 million allocation for the community’s economic development, education and infrastructure.
RM575 million proposed for socio-economic assistance to senior citizens benefiting 137,000 seniors whose household income is below poverty level
RM25 million allocated to manage, administer and expand food bank programme
Allocation for subsidies and social assistance increased to RM24.2 billion, including welfare aid such as Bantuan Sara Hidup (BSH). BSH scheme expanded to cover 1.1 million single individuals aged above 40 earning less than RM2,000 per month.

Rural development

RM10.9 billion allocated for rural development projects in 2020, from RM9.7 billion in 2019
RM738 million provided for Risda and Felcra to implement income generating programme
RM1 billion set aside for rural roads throughout Malaysia, primarily targeted at Sabah and Sarawak

Education and training

Allowance for KAFA teachers increased by RM100 a month, to benefit 33,200 existing teachers
RM735 million proposed for school maintenance and upgrading works
Government allocates RM210m to expedite digital infrastructure establishment in public buildings like schools
Education Ministry to receive largest allocation of of RM64.1 billion in 2020 from RM60.2 billion in 2019
Allocation for TVET programmes raised from RM5.7 billion in 2019 to RM5.9 billion in 2020
RM1.3 billion proposed for education institutions under MARA, a further RM2 billion for student loans benefitting 50,000 students

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Saturday, September 1, 2018

SST - for better or worse ?

What is Sales & Service Tax (SST) in Malaysia? - SST Malaysia

Today, the Sales and Service Tax (SST) makes a comeback on our tax radar screen to replace the three years and two months old Goods and Services Tax (GST), which was implemented on April 1, 2015.

The abolition of the GST and replaced with SST is an election promise of the Pakatan Harapan manifesto.

It has been claimed that the GST is a regressive broad-based consumption tax that has burdened the low- and middle-income households amid the rising cost of living. The multi-stage tax levied on supply chains also caused cascading cost and price effects on goods and services. That said, the Finance Minister has acknowledged that the GST is an efficient and transparent tax.

Following the implementation of the SST, the Government will come to terms that the budget spending will have to be rationalised and realigned with the lower revenue collection from the SST to keep the lower budget deficit target on track.

The expected revenue collection from SST is RM21bil compared to an average of RM42.7bil per year in 2016-17 from GST.

During the period 2010-2014, the revenue collection from the SST, averaging RM14.8bil per year (the largest amount collected on record was RM17.2bil in 2014), of which 64% was contributed by the sales tax rate of 10% while the balance 36% from the service tax of 6%.

Faced with the revenue shortfall, the Government expects cost-savings, plugging of leakages, weeding out of corruption as well as the containment of the costs of projects would help to balance the financing gap between revenue and spending.

The sales tax rate (0%, 10% and 5% as well as a specific rate for petroleum) and service tax of 6% is imposed on consumers who use certain prescribed services. The taxable threshold for SST is set at annual revenue of RM500,000, the same threshold as GST, with the exception for eateries and restaurants at RM1.5mil.

As SST is levied only at a single stage of the supply chain, that is at the manufacturers or importers level and NOT at wholesalers, retailers and final consumers, it has cut off the number of registered tax persons and establishments from 476,023 companies under GST as of 15 July to an estimated 100,405 under SST.

The smaller number of registered establishments means no more compliance cost to about 85% of traders.

The distributive traders (wholesalers and retailers) will be hassle-free from cash flow problems, as they are no longer required to submit GST output tax while waiting to claim back the GST input tax. During GST, many traders imputed refunds into their pricing because of the delay in GST refunds. This was partly blamed for the cascading cost pass-through and price increases onto consumers.

For SST, 38% of the goods and services in the Consumer Price Index (CPI) basket are taxable compared to 60% under the GST.

It is estimated that up to RM70bil will be freed up to allow consumers to spend more.

Expanded scope

The proposed service tax regime has a narrower base (43.5% of services is taxable) compared to the GST (64.8% of services is taxable).

Medical insurance for individuals, service charges from hotel, clubs and restaurants as well as household’s electricity usage between 300kWh and 600kWh are not taxable. However, the scope of the new SST has been expanded compared to the previous SST. Among them are gaming, domestic flights (excluding rural air services), IT services, insurance and takaful for individuals, more telecommunication services and preparation of food and beverage services as well as electricity supply (household usage above 600kWh).

For hospitality services, the proposed service tax lowered the registration threshold of general restaurants (not attached with hotel) from an annual revenue of RM3mil under old service tax regime to RM1.5mil, resulting in expanded coverage of more restaurants.

Private hospital services will be excluded under the new SST regime.

How does SST affect consumers?

Technically speaking, the revenue shortfall of RM23bil between SST and GST is a form of “income transfer” from the Government to households and businesses. This is equivalent to tax cuts to support consumer spending.

Will it lead to higher consumer prices?

The contentious issue is will the SST burden households more than that of the GST? It must be noted that the cost of living not only encompasses prices paid for goods and services but also housing, transportation, medical and other living expenses.

The degree of sales tax impact would depend on the cost and margin (mark-up) of businesses along the supply chain before reaching end-consumers.

The coverage and scope of tax imposed also matter.

As the price paid by consumers is embedded in the selling price, this gives rise to psychology effect that sales tax is somewhat better off than GST.

The good news to consumers is that 38% of the goods and services in the Consumer Price Index (CPI) basket are taxable compared to the 60% under the GST.

Technically speaking, monthly headline inflation, as measured by the Consumer Price Index, is likely to show a flat growth or even declines in the months ahead.

It must be noted that consumers should compare prices before GST versus the three-month tax holiday (June-August).

Generally, consumers perceived that prices should either come down or remained unchanged as the sales tax is levied on manufacturers.

On average, some items (electrical appliances and big ticket items such as cars) would be costlier when compared to GST and some may come down (new items exempted from SST).

Nevertheless, we caution that consumers may experience some price increases, as prices generally did not come as much following the removal of GST in June.

There are concerns that prices may still go up in September when the new SST kicks in as irresponsible traders may take advantage to increase prices further.

Household consumption, which got a big boost during the three-month tax holiday in June-August, could see some normalisation in spending.

The smooth implementation of the new SST, accompanied by strict enforcement of price checks and the curbing of profiteering, especially for essentials goods and services consumed by B40 income households, are crucial to keep the level of general prices stable.

Strong consumer activism with the support of The Federation of Malaysian Consumers Association and the Consumers Association Penang as well as the media must work together to help in price surveillance and protect consumers’ interest.

Credit to Lee Heng Guie - comment

Related post:

GST vs SST. Which is better?

SST - for better or worse ?

What is Sales & Service Tax (SST) in Malaysia? - SST Malaysia

GST vs SST. Which is better?

Sunday, July 22, 2018

The rich are becoming richer

They are becoming richer at a faster rate too

DON’T the rich always grow richer, while the poor well, remain poor.

If you’re already disheartened, it gets worst. The rich are getting richer, and at a faster rate too.

A 36-page report released by the Boston Consulting Group (BCG) last month showed that global personal financial wealth grew by 12% in 2017 to US$201.9 trillion.

This total, roughly 2.5 times as large as the world’s gross domestic product (GDP) for the year (US$81 trillion), more than doubled the previous year’s rate, when global wealth rose by 4%.

It also represented the strongest annual growth rate in the past five years in dollar terms.

“The main drivers were the bull market environment in all major economies, with wealth in equities and investment funds showing by far the strongest growth and the significant strengthening of most major currencies against the dollar,” said BCG in the report.

The increasing millionaires and billionaires now hold almost half of global personal wealth, up from slightly less than 45% in 2012, says BCG. In North America, which had US$86.1 trillion of total wealth, 42% of investable capital is held by people with more than US$5mil in assets. Investable assets include equities, investment funds, cash and bonds

In terms of asset classes, US$121.6 trillion (60%) of global wealth took the form of investable assets – mainly equities, investment funds, currency and deposits, and bonds, with the remaining US$80.3 trillion (40%) held in non-investable or low-liquidity assets such as life insurance, pensions funds, and equity in unquoted companies.

Residents of North America held over 40% of global personal wealth, followed by residents of Western Europe, with 22%. The strongest region of growth was Asia, which posted a 19% increase. All wealth segments grew robustly, but high growth rates were especially prevalent in the uppermost wealth segments.

The market sizing review encompasses 97 countries that collectively account for 98% of the world’s gross domestic product.

The personal wealth bands are generally measured as such:

1. Retail: below US$250,000

2. Affluent: between US$250,000 to US$1mil

3. Lower High Net Worth (HNW): between US$1mil and US$20mil

4. Upper HNW: between US$20mil and US$100mil

5. Ultra HNW: above US$100mil

Everybody is getting richer

The US is home to the largest number of people with more than US$20mil. Globally, the classes of the ultra-rich are expected to reach 671,000 by 2022.

Meanwhile, the Middle East is the region with the greatest share of wealth held in investable assets US$3.1 trillion of a total US$3.8 trillion. Western European residents held 56% in currency and deposits, while in North America the attention was on equities and investment funds, with 62% of US$47 trillion of investable wealth parked in those assets.

Should personal wealth creation continues at the rate of the past few years, BCG forecasts a compounded annual growth rate of about 7% from 2017 to 2022, in US dollar.

Events like stock market corrections and geopolitical uncertainties could knock that down to 4%.

In a worse-case scenario, such as a major economic crisis, global wealth might produce a compound growth rate of only 1% over five years, the study found.

BCG says opportunities abound for wealth managers seeking to increase their focus on different client segments.

For example, despite being far apart on the wealth spectrum, both the above US$20mil segment (upper HNW and ultra HNW) and the affluent segment are attractive because they represent very large wealth pools with high growth rates.

In 2017, the upper HNW and ultra HNW segments held more than US$26 trillion in investable wealth.

US residents held over 30% of this wealth, making the US easily the largest country of origin.

Other economic areas with large pools of ultra HNW investable assets include developing markets such as China (in second place), Hong Kong, India, Russia and Brazil, and developed markets such as Germany (in third place), France and Italy.

The share of wealth held by upper HNW and ultra HNW individuals varies widely aong the top 15 countries, ranging from 47% in Hong Kong to 8% in Japan.

Over the next five years, the upper HNW and ultra HNW segments wealth is likely to post the highest growth across all regions.

“Financial institutions looking to acquire and serve these segments will need to bring a broad international skill set to the table,” said BCG.

Affluent individuals

Afluent individuals is a segment whose population is burgeoning, hold a large and increasing amount of the world’s personal wealth at US$17.3 trillion or 14% of investable assets in 2017. (see chart)

This group of about 72 million people represents the growing middle class and many of its members will become the millionaires of tomorrow.

“We expect the wealth of this segment to post a compound annual growth rate (CAGR) of around 7% over the next five years, increasing its pool of wealth to nearly US$25 trillion. To successfully tap into this segment, wealth managers must have at their disposal an efficient service model and significant skill in and innovative digital technologies,” said BCG.

Entrepreneurs

The entrepreneur segment represents another attractive opportunity for wealth managers to tap into money in motion and provide needed services.

“We expect these individuals, who have equity in their own companies – recorded as unquoted equities (non-investable wealth) – to significantly increase their pool of investable assets, by liquidating some or all of their equity through sales and by earning new wealth through their entrepreneurial activities. The largest pools of entrepreneurial wealth are in the US, France, Italy and Japan.

Asia

Personal wealth in Asia grew by 19% to US$36.5 trillion, with residents of China holding nearly 57% of that amount, and the region registered per capita wealth of US$13,000. Although the asset allocation share of equities ad investment funds has grown over the past five years (from 22% in 2012 to 31% in 2017), Asia remains a cash-and-deposit-heavy region, with 44% of personal wealth held in this asset class. We project regional wealth to grow over the next five years at a CAGR of 12%.

Meanwhile Switzerland remains the largest offshore centre, domiciling US$2.3 trillion in personal wealth in the country. The next largest booking centres are Hong Kong (US$1.1 trillion) and Singapore (US$0.9 trillion) which have grown at yearly rates of 11% and 10% respectively – more than three times the rate (3%) of Switzerland over the past five years.

Over the next five years, BCG feels off

By Tee Lin Say, Starbiz