26/09/2012 (The Sun Daily) - The government is not expected to significantly increase taxes, including sin taxes, in Budget 2013 ahead of the 13th general election (GE), Kenanga Research said.

"Should this expectation materialise, we believe that there will likely be some run-ups in tobacco, brewery and gaming stocks," its head of research Chan Ken Yew said in a report yesterday.

"Green cars are expected to continue to enjoy a favourable tax treatment. Hence this may benefit Honda directly or DRB-Hicom Bhd indirectly, as they are ones that are the most aggressive in this segment relatively to other auto players," he added.

The research firm is hopeful that the government may reduce corporate and personal income taxes, although the probability is low, especially in the absence of the goods and services tax (GST).

"Due to the GE factor, we also reckon that the topic of GST will not be raised in the forthcoming budget. However, due to Indonesia's corporate-friendly CPO (crude palm oil) tax structure and the effort to promote the palm oil industry as per the Economic Transformation Programme, we reckon that the government should relook at the windfall tax on upstream CPO players.

"In fact, we foresee a favourable share price response for all planters should this tax issue be addressed," said Chan.

He also believes that there is a high likelihood that the real property gains tax will be raised, especially for higher-end properties, as part of efforts to curb speculation.

"However, for the affordable housing segment, we are likely to see more favourable tax incentives, that is, a waiver of stamp duty or tax deduction for mortgage instalment interest against personal taxable income. As such, we prefer developers that have meaningful or significant earnings contributions from the affordable housing segment such as Hua Yang Bhd, IJM Land Bhd and UOA Development Bhd," said Chan.

And while he agrees that the budget would be people-friendly, he feels it could be fairly neutral to the stock market.

"(This is) unless we see a stronger-than-expected fiscal deficit position, a reduction in corporate income tax or an abolishment of the windfall tax for planters, which could then be more positive for the market," said Chan.

Kenanga is projecting the country's fiscal deficit to improve to 4.3% of gross domestic product in 2013 from an estimated 4.9% in 2012.