Malaysia urged to review windfall tax

A 30 percent windfall profit tax was imposed July 1 on independent power producers as part of government efforts to offset rising costs to cope with high global oil prices.

Penjanabebas, an association of 15 independent power producers, earlier this week warned the levy could affect their ability to meet loan obligations. It said the sector issued bonds and loan notes estimated at 20 billion ringgit ($6.25 billion) in 2006 and the new tax could lead to a downgrading of their bonds.

Nazir Razak, chief executive of CIMB Group, said Friday the tax would make it more expensive to raise funds for government-backed infrastructure projects.

The tax is akin to "shooting a golden duck" and could be detrimental to Malaysia's financial markets as independent power producers account for 21 percent of the country's bond market, he said.

"It will be very difficult for infrastructure projects like toll roads to raise money in the bond market," he was quoted as saying by the national Bernama news agency.

"There are no winners in this IPP windfall tax because ... borrowing costs in Malaysia will go up and further increase incremental cost of borrowings to the government and corporates," he said. "The higher cost of borrowings will far exceed the money that they (government) hopes to raise from the IPPs windfall tax."

Government officials couldn't be immediately reached for comments.