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PETALING JAYA: Be selective on introducing new taxes to avoid shocking the local capital market, say fund managers and analysts.
Prime Minister Datuk Seri Anwar Ibrahim yesterday hinted that there will likely be additional taxes, including the capital gains tax (CGT) to meet the target of almost halving the fiscal deficit by 2025.
While market pundits agreed that Malaysia needs to diversify its revenue base, they also warned that a rushed introduction of new taxes would make the Malaysian capital market less competitive regionally.
One major tax deemed unfavourable by analysts and fund managers is the CGT on public-listed shares.
A common criticism of the CGT is that it could make locally-listed stocks unappealing by reducing investors’ profits, especially in times of market slowdown.
CGT is a tax levied on capital gains accruing from disposals of investments or assets.
Concerns about the CGT re-emerged after Anwar said yesterday that the CGT is one of the new taxes being formulated for implementation in 2024. However, he did not provide details.
It is noteworthy that under the revised Budget 2023 unveiled in February, the government announced the introduction of CGT on the disposal of unlisted shares by companies beginning 2024.
Listed stocks on Bursa Malaysia would not be affected by the tax. However, many observers see the CGT on unlisted shares as the first step towards a full-fledged CGT implementation in the future.
Speaking with StarBiz, fund manager Danny Wong acknowledged the need for Malaysia to expand its tax base. However, he said new taxes will be met with negative investor reaction.
“It all depends on the details of the new taxes and how they will be implemented,” he said.
Wong, who is the chief executive officer of Areca Capital, pointed out that key financial markets in the region like Singapore and Hong Kong do not impose CGT on the trading of listed shares.
“If Malaysia chooses to have CGT, it will make our stock market less competitive.
“If the government wants to have CGT to address short-term speculative gains, it may work.
“But, if you impose the CGT on long-term investments, there will be more negatives than positives,” he said.
Meanwhile, Rakuten Trade head of equity sales Vincent Lau opined that the CGT on listed shares would not bring in a huge revenue for the government as commonly thought.
“Instead, the tax is likely to cause the market to fall. Not only CGT, inheritance tax and some other taxes would also have negative effects on the market,’ he said.
Rather than introducing such taxes, Lau said it was better to only bring back the goods and services tax (GST), but at a lower rate.
Previously, prior to its removal in 2018, the GST was levied at 6%.
On another note, analysts said more funds are expected to flow into the Malaysian stock market, following the unity government’s success in retaining the Pulai parliamentary seat in last weekend’s by-election.
It is also expected that the decision by the Malaysian United Democratic Alliance (Muda) to quit the government bloc – denying the Madani government’s two-thirds majority – will not have any significant impact on investor sentiment.
Led by Anwar, the ruling government currently has 147 seats in Parliament, controlling 66.2% of the total seats.
Analysts have welcomed the government’s convincing win in Pulai, after Pakatan Harapan (PH) candidate Suhaizan Kayat triumphed with a majority of 18,641 votes.
In the Johor state seat of Simpang Jeram, which also saw a by-election last Saturday, PH candidate Nazri Abdul Rahman won with a majority of 3,514 votes.
Both Pulai and Simpang Jeram seats fell vacant following the death of Datuk Seri Salahuddin Ayub, former Domestic Trade and Cost of Living Minister, on July 23. Salahuddin was also from PH.
Areca Capital’s Wong said while the victory in Pulai meant status quo for the Anwar Ibrahim administration, it has added stability to the ruling government.
“For foreign investors, the victory means reduced political risk weighing down the domestic equity market. There is more clarity now in terms of political stability and I foresee foreign funds to improve.
“In fact, post-15th General Election in November 2022, there seems to be an improvement in foreign funds,” said Wong.
Rakuten Trade’s Lau said that PH’s win in Pulai was reassuring to investors that the “green wave” was not as extensive as previously thought.
“The green wave has not entered the southern part of Peninsular Malaysia, judging from the Pulai by-election result,” said Lau.
Green wave refers to the voting pattern in favour of Perikatan Nasional, especially its right-wing component party PAS.
“The unity government’s performance in Pulai reinforces political stability after the bruising results in the six state elections.
“It is good for the market,” according to Lau.
In a contrasting opinion, economist Geoffrey Williams of Malaysia University of Science and Technology said that international investors do not care about by-elections in Johor or even state elections.
“They care about the relative performance of Malaysian equities compared to alternatives in other countries.
“Since this (Pulai seat) is the same now as before the elections there will be no particular effect.
“It was bad before and it will continue to be bad in the future,” he said.
Meanwhile, Williams noted local investors are dominated by the government-linked investment companies and that their investments in local equities are determined by their strategic asset allocations.
“Again they have to go overseas because of the poor performance of listed companies on Bursa Malaysia.
“This has not changed due to the elections,” he said.
When asked whether he was satisfied with the reforms and initiatives taken by the Madani government in the past 10 months, Williams said there were some innovative ideas such as the Progressive Wage System.
However, the New Industrial Master Plan 2030 was disappointing and was similar to previous plans, according to him.
The National Energy Transition Roadmap, when viewed with the National Energy Plan, is mostly organic change, he said.
“Overall, it looks like many of the plans are hangovers from the previous administration or are designed by the same people who created the previous plans.
“They still have the same structure of targets, enablers and action plans and too much government interference and intervention.
“They are essentially plans to cascade patronage and projects just as before because they are designed by the same people or at least different people with the same mindsets,” he said.
Lau, however, viewed the Anwar Ibrahim administration’s policy direction more positively.
“As for now, I believe the government is on the right track, following their policy announcements.
“However, the outcome of these policies really depend on how they are implemented,” he said.
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