Choivo Capital
(CHOIVO CAPITAL) Why Capital Gain Tax on Equities could be a good idea.
Choivo Capital
Publish date: Sun, 14 Oct 2018, 04:59 PM
Recently, there has been a lot of rumors on CGT being implemented on Stocks. Needless to say we heard a lot of protest and reasonable sounding arguments against this tax.
Having said that, i think people here are complaining because, everyone here is in the markets. And this is your profit being affected. Not so much because you think it’s worse for the country etc.
Having said that, most forumers here should actually be happy, because most of retailers lose in the market. You can now set it off against you income tax.
Here are a few reasons why i think its an Ok-ish idea, depending on how its implemented.
- Earnings should be taxed equally across the board as much as possible.
Why should Koon Yew Yin, who made a few hundred million from stock market pay zero in tax, while the middle class individual who earns RM50k - RM70K a year taxed at 16%?
This does not make sense. It’s almost as if the middle class of malaysia is subsidising the rich of malaysia.
One gets CGT on property gains. It does not make sense for gains from stock investment to not be taxed as well.
I would suggest a similar structure to the current property tax
Disposal Within 1 year: 20% tax
Disposal on 2nd year: 15% tax
Disposal on 3rd year: 10% tax
Disposal on of after 4th year: 5% tax
- Encourage investing instead of gambling
One of the reasons why US markets is more vibrant to an extent, is because one CGT is taxed, and they are different rates depending on how long it is held.
This encourages investing and holding for a longer period of time.
If one were to even take a look on the kind of research being churned out in the US, the quality is far beyond anything here. This is the same for most mature markets.
Having said that, this is probably bad for me, because as an investor, it’s my preference to have others be gambling instead, and lower my long term purchase cost of my shares.
Now, there are a few reasons that others as put up, on how CGT on gains from stocks will be detrimental to malaysia and its markets. Allow me to debunk them, or illustrates the trade offs.
Or how it can be implemented better.
- Malaysia has weak capital flow to begin with, if we create tax, it would kill it.
This is true. But malaysia had weak capital flow to begin with, and has deterioated from 20% of the MSCI Asia Index to less than 3%.
The goal is to solve this problem first.
One of the reasons malaysia has weak capital flow, is due to the fact that many foreigners do not trust the currency, the government or the people that much to begin with.
US and Europe have CGT and yet have strong capital inflow. China has no CGT, and yet stocks have incredibly low valuations. This reflects the confidence of investors in the market.
To make malaysian markets more attractive to investors the government should,
-
Open up the markets completely, and remove any capital inflow or outflow restrictions.
-
The government needs to show that they can be trusted and follows the rule of law.
-
The Securities Commission also needs to really crack down on rubbish companies, insider trading etc. NETX, MLABS etc is all under a stock market manipulator.
-
To create incentives that focus on investing instead of gambling
-
Open up the exchanges completely, with direct links to every market in the world, and have international brokerages come in. Let our local brokages fight it out or die, very simple.
-
Enable bonds to be sold easily over the exchange.
-
Allow stocks to be sold in foreign currencies.
- Stop using PNB, Khazanah, LTAT, KWSP etc as buyer of all resort. These people need to sell stocks whenever valuations are unattractive. These funds already have some ponzi like characteristics in them to begin with.
Some of those reasons above are the same reason why China companies have low valuations.
- Companies will find it harder to raise money.
Regardless of market, rubbish companies will find it hard to raise money, while great companies will find it easy to raise money.
People when they find it hard to raise money here, is due to a reason completely different from whether or not we have CGT.
- Flight of foreign capital and local companies falling into foreigners' hands.
One of the points raised by Jay,
“In an uncompetitive capital market, aspiring local companies would also probably choose to list themselves overseas rather than in Bursa, which means highly likely that these future local champions would end up being owned by foreign investors rather than locals. It's just sad to think about that.”
Does not really hold water for me. What do you mean by un-competitive capital market?
Do you mean market that is unwilling to give stupid valuations to companies?
Does this mean you would rather Malaysians be the one paying stupid valuations? Like Tunepro and AAX when it was listed?
Would you rather the loss be in malaysian hands? Right now, despite how it may increase my future cost, i would rather SAPRNG had listed in NYSE.
At the end of the day, for most local companies, listing in Malaysia is way way cheaper than trying to list in SGX, HSI, NYSE, NASDAQ, Shanghai or Shenzen. Especially when it comes to maintaining the listing.
And if the Company is really out to raise money, instead of scamming money, they would take the more reasonable route of saving their cost by listing in KLSE instead of overseas market.
Conclusion
Having said that, they are probably better things to tax for now, Sugar for example. Its also not a bad idea to let immigrants come in as well, to run our mamak’s etc.
All these places which need high foreign labour is closing down. Loosen those restrictions and let these places come alive again and pay income tax.
But this does not mean that CGT should not be levered on Stocks. It should be, but the timing is probably best after we have solved most of the problems that result in malaysian exchanges being unattractive to begin with.
====================================================================
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Discussions
1 person likes this. Showing 31 of 31 comments
Yeah, because its actually very easy to track losses.
In the US, you only pay tax on the net profit or losses.
Depends on how they structure it i guess, may very well allow you to claim on losses.
If you're smart, many investors there, will realize the loss, and buy the stocks again.
And don't sell.
Or set it off against future gains.
===
Posted by KenaTipu_ > Oct 14, 2018 05:06 PM | Report Abuse
If loss can claim from govn? How to claim or allow to claim? Why only hear capital gain tax not capital loss tax refund haha?
2018-10-14 17:09
Ni kepala buto skill xde cuma pandai buli wanita
Posted by Jon Choivo > Oct 14, 2018 04:31 PM | Report Abuse
Sarifah,
How many times do you want to be seen as a kepala buto ah !?
===
Posted by SarifahSelinder > Oct 14, 2018 04:22 PM | Report Abuse
Jaga jaga ni la dia sebenarnya
Jaga jaga ni la dia sebenarnya
Kasar dan buli wanita
Posted by Jon Choivo Have you seen the insurance given to RMBS CDO's by AIG to Lehman Brothers etc?
Its was so under priced and stupid, that they need USD85 billion from the US govt to be bailed out.
Stock price drop from USD1,173 to USD19.43. Even today, its only USD 54 per share. Still 95% down from peak.
And this is AIG, the biggest insurance co in the world.
Guna otak sendiri boleh? You ingat china Allah ke? Takde pergi baca annual report bank-bank china ke? You want to see how the GIL expand anot?
ICBC in 2005 before listed, bad loans about 40% tau. Not kidding. Need so much injection by china gov to get it pretty for listing. And even then, GIL was 5 times higher than world average.
I don't care who borrow who, who invest in what, who give loan to who, who say what to who.
If it does not make sense to me, i won't buy.
========
Posted by SarifahSelinder > Sep 20, 2018 12:31 PM | Report Abuse
Yg jon ni ada ada je
Yg ni nak beli 10,000 shares je bukan main doubting kiraan bank bank China yg beri billion billion loan
20/09/2018 14:02
Jon Choivo Bkn takut beli.
Got better things to buy. You ingat bursa hanya ada jaks ke?
Mcm tu, suspend semua saham sajalah, bagi jaks trading saje!
Kepala buto.
====
Posted by SarifahSelinder > Sep 20, 2018 12:33 PM | Report Abuse
Drop to 80 sen lg takut beli? Put in fd je la
20/09/2018 14:03
2018-10-14 17:10
Saya ni bukan buli wanita, hanya buli kepala buto!
Kadang kadang, yang kepala buto tu pompuan, dan namanya serifah.
Jadi saya buli dia loh!
======
Posted by SarifahSelinder > Oct 14, 2018 05:10 PM | Report Abuse
Ni kepala buto skill xde cuma pandai buli wanita
2018-10-14 17:13
Tax song
A-B-C-D- GST,
Prices rise for you and me,
Mesti makan Maggi mee,
semua kena GST, bayar untuk 1MDB !
E-F-G-H- SST,
Harga barang masih sama tinggi,
Masih makan maggi mee setiap hari,
Ditambah lagi banyak cukai baru mari !
I J K L -CGT,
Pelabur Bilis bayar cukai keuntungan,
Pelabur Asing semua lari,
Taiko Khazanah, KWSP disuruh beli,
Bursa jatuh kerana pembeli dah lari,
Akhirnya Khazanah, KWSP makan Maggi mee.
Korus:
PH kah harapan sejati
Manifesto GE sukar ditepati
Berita buruk hari-hari
Nak tangkap pencuri tak jadi
M-N-O-P
Gaji besar menteri-menteri
Juga orang-orang GLC
Habislah dana negara bayar gaji
Masih tak sekuat mana RM dan KLSE
Q-R-S-T
Gaji buta diambil, bos dipuji
Budaya ampu, kerja tak peduli
Tidak malu turun prestasi
Dapatkah kemerosotan negara diatasi?
Rap part:
U U-turns tak habis-habis bagai komedi
V We want a gomen for the ppl, bukan untuk diri
W Double up the econ pie
X Axe all the redundant highly paid officers
Y Why?
Z Zzzz enough, wakey
2018-10-14 17:25
Jon Choivo don't talk rubbishhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
2018-10-14 17:35
Ya rubbish
Gomen kan tenggah encourages org ramai to trade dgn mcm mcm cara like IDSS pun diluluskan
2018-10-14 17:42
Dear all,
Will the stock broker able to give us sell statement to indicate whether we are profit or loss for each trade? If not how to file this profit or loss?
By the way KYY most likely also having a loss year what CGT to pay? Then how to write off those counter that got suspend (Xingquan) as loss?
If really PH government short of money than perhap just increase the stamp duty so as to make day trading or big shark cost of selling and buying from right hand to left hand more costly. Also please tax those major shareholders that profited from esos.
Lastly Bursa and SC need to respond to complaint more efficiently and should not hide under confidentality of information to deny updating their investigation.
Thank you
2018-10-14 19:06
If really PH government short of money than perhap just increase the stamp duty so as to make day trading or big shark cost of selling and buying from right hand to left hand more costly. Also please tax those major shareholders that profited from esos.
....................
sslee...your idea not bad
2018-10-14 19:14
Cakap saja pandai tapi tak adil kerajaan untung saja tak ambil risiko apa-apa.
I would suggest a similar structure following the current property tax but with payback for losses incurred by investors
Disposal Within 1st year: 20% CGtax
Disposal of losses Within 1st year: 5% tax CLrefund; CLrefund= Capital Loss refund
Disposal on 2nd year: 15% CGtax
Disposal of losses Within 2nd year: 10% tax CLrefund
Disposal on 3rd year: 10% CGtax
Disposal of losses Within 3rd year: 15% tax CLrefund
Disposal after 4th year: 5% CGtax
Disposal of losses Within 4th year: 20% tax CLrefund
I think the above rates are fairer to both Governm & investor.
Government must payback losses investors; not 100% always gaining only.
2018-10-14 19:44
https://www.freemalaysiatoday.com/category/bahasa/2018/10/14/menteri-beri-jaminan-lebuhraya-pan-borneo-bebas-tol/
OUR BORNEO COUNTERPART BOLEH!!
EXCELLENT ROLE MODEL
2018-10-14 20:10
Dear SSlee
Usually they tax on REALIZED gains or loss. Which means you need to have sold it.
So KYY unless he sold XQ, may not get to utilize that tax loss.
If the gov do implement cgt, the brokerages will naturally need to adjust and provide this service, like how every single brokerage that operates in countries that tax cgt do
In addition, people seem to forget CGT on equities, is on all equities.
Even if the gain is from US equities, you also need to pay, cannot run.
That is why for US equities, we don't pay tax, despite Americans paying tax.
Because our government do not tax us.
=============
Posted by Sslee > Oct 14, 2018 07:06 PM | Report Abuse
Dear all,
Will the stock broker able to give us sell statement to indicate whether we are profit or loss for each trade? If not how to file this profit or loss?
By the way KYY most likely also having a loss year what CGT to pay? Then how to write off those counter that got suspend (Xingquan) as loss?
If really PH government short of money than perhap just increase the stamp duty so as to make day trading or big shark cost of selling and buying from right hand to left hand more costly. Also please tax those major shareholders that profited from esos.
Lastly Bursa and SC need to respond to complaint more efficiently and should not hide under confidentality of information to deny updating their investigation.
Thank you
2018-10-14 20:23
this forum worry about things that will not happen....but neglect things that will happen........lol......
2018-10-14 20:51
this forum worry about things that will not happen....but neglect things that will happen........lol......
why? no brains, that is why......
2018-10-14 20:52
yeah good point you raised there, Prof Choivo, where did you go though? Miss your post leh
2018-10-14 22:52
who no brain or grey matters...look yourself at the mirror, whose image is on the mirror???
last time, people said hearsay Gst not going to implement, no worry... last-last how is the Gst story scripts unfold? ask your brain lah... kikiki.
///qqq3 ///this forum worry about things that will not happen....but neglect things that will happen........lol......
why? no brains, that is why......
14/10/2018 20:52a/ //
2018-10-15 07:37
1. We need to understand each market unique characteristic. Our market liquidity is a problem due to domination of institutions. We need more liquidity not less. Value Partners also commented that our market free flow is too little and it's unhealthy. If CGT is imposed which discourage realising profit by our institutions, chances are they will never dispose any shares even when valuations are unattractive, which also means value investors will not waste their time in our market
2.I agree with you that some reforms are needed to strengthen our capital flows. But these can't be improved overnight whereas new taxes can dent confidence instantly. Again using a patient's analogy, you don't perform surgery on a weak patient, you let him recover strong enough first before it can be done
3. I am mainly referring to market with low liquidity for your point 3. It's the same problem why Sdn Bhd find it hard to raise equity because many people don't invest due to lack of liquidity. Companies don't stop raising financing once they list. They might still need placement, rights issue etc. to continue to grow the company. If our market is not attractive, they will list elsewhere where it's easier to raise money in the future. And mind you, good companies which can list elsewhere probably will while those lousy companies which can't list anywhere but Bursa will stay. That's when you end up with a bunch of rejects in our market
Bottom line, my personal view is CGT is the wrong tax (limited revenue impact) at the wrong time (volatile capital flows). Our priorities now should be clean up and develop our capital markets first. Beyond that, I am not entirely against the concept of CGT
2018-10-15 08:26
Gone is the previous goon gomen
New one must buck up
Best time not to be goon was 60 years was
Next bext timw is now
2018-10-15 08:48
Fair enough.
I think its a right tax, just wrong time for now haha.
On 3, i think its not just about the market is not good. Its mainly because interest rates in the US were so low. People are therefore very willing to make highly speculative bets.
There is a common complaint among startups here, everytime they try to raise funding. people keep asking them how are they going to make money.
Very few is willing to take a punt on a purely speculative venture.
I don't see anything wrong with this.
I cant really think of a private placement these days that flopped. And in any event, a company that constantly need to raise money with placement, right issue etc, is probably a pretty horrible one.
Let those list in the NYSE.
=====
Jay 1. We need to understand each market unique characteristic. Our market liquidity is a problem due to domination of institutions. We need more liquidity not less. Value Partners also commented that our market free flow is too little and it's unhealthy. If CGT is imposed which discourage realising profit by our institutions, chances are they will never dispose any shares even when valuations are unattractive, which also means value investors will not waste their time in our market
2.I agree with you that some reforms are needed to strengthen our capital flows. But these can't be improved overnight whereas new taxes can dent confidence instantly. Again using a patient's analogy, you don't perform surgery on a weak patient, you let him recover strong enough first before it can be done
3. I am mainly referring to market with low liquidity for your point 3. It's the same problem why Sdn Bhd find it hard to raise equity because many people don't invest due to lack of liquidity. Companies don't stop raising financing once they list. They might still need placement, rights issue etc. to continue to grow the company. If our market is not attractive, they will list elsewhere where it's easier to raise money in the future. And mind you, good companies which can list elsewhere probably will while those lousy companies which can't list anywhere but Bursa will stay. That's when you end up with a bunch of rejects in our market
Bottom line, my personal view is CGT is the wrong tax (limited revenue impact) at the wrong time (volatile capital flows). Our priorities now should be clean up and develop our capital markets first. Beyond that, I am not entirely against the concept of CGT
15/10/2018 08:26
2018-10-15 09:10
The government’s plan to introduce new taxes in order to pare down the national debt of RM1 trillion became the talking point after Prime Minister Tun Dr Mahathir Mohamad, Finance Minister Lim Guan Eng and Bank Negara governor Datuk Nor Shamsiah Mohd Yunus all spoke about it during the Malaysia: A New Dawn conference on Oct 9.
Incidentally, Bursa Malaysia saw a bloodbath the next day, with the FBM KLCI shedding 39 points, falling the most in nearly five months.
An excellent idea for causing further financial bloodbath to all Malaysians if implemented !
2018-10-15 10:17
it's just to reduce manipulation in stock market loorr, it's encourage investor to study what stock they want buy and just buy ONCE in a year,...end of year or next next year only sell your stock... so kena ONCE only tax should be not that bad. just my 2cents
2018-10-15 15:22
Do U think with the negative performance of chivo with negative 14% do u think, he is worried about his stock being tax for capital gain leh ??
2018-10-15 15:48
What wrong timing ??
If market is bad and most people lose monies...why wrong timing leh ??
Lose monies....why worry about CGT....as u do not need to pay tax loh...!!
Posted by Jon Choivo > Oct 15, 2018 09:10 AM | Report Abuse
Fair enough.
I think its a right tax, just wrong time for now haha.
On 3, i think its not just about the market is not good. Its mainly because interest rates in the US were so low. People are therefore very willing to make highly speculative bets.
There is a common complaint among startups here, everytime they try to raise funding. people keep asking them how are they going to make money.
Very few is willing to take a punt on a purely speculative venture.
I don't see anything wrong with this.
I cant really think of a private placement these days that flopped. And in any event, a company that constantly need to raise money with placement, right issue etc, is probably a pretty horrible one.
Let those list in the NYSE.
2018-10-15 16:11
yup, its good that jon raised this topic but the main issue with the market is liquidity and encouraging retail participants. a cgt will drive off many small retailers while not encouraging capital inflow, this need the economic, finance and international trade ministries working together.
unfortunately, i m not seeing this govt working on anything substantial on the economics front.
KLCI King Good job, Jon, different ideas & opinions are welcome for such topic.
15/10/2018 16:06
2018-10-15 16:15
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KenaTipu_
If loss can claim from govn? How to claim or allow to claim? Why only hear capital gain tax not capital loss tax refund haha?
2018-10-14 17:06