Plenty of voices now in anticipation of the upcoming Budget on new taxes to be implemented to help shore up our finances. Malaysia is a very open economy. There are traits to consider before implementing new taxes.
Unique traits of Malaysia:
a) Very open economy
b) Ringgit has been weak, which actually has helped plenty of exporters but they are being very quiet about it
c) There are very very few safety nets for Malaysians unlike many developed countries, which means we should not overly burden the lower income group
d) We have a very simple tax code, let's not complicate it as its a major plus point for FDI
e) Our stock market has the largest portion of GDP that is listed compared to all the rest of the bourses in the world, that implies that it has a very high multiplier effect for the rest of the economy. Hence efforts must be made to preserve its vibrancy.
Nobel laureate Joseph Stiglitz has come up with a few recommendations, so too from a few local and regional economists.
1) Inheritance Tax - Many might not know that the tax was once imposed in Malaysia under the Estate Duty Enactment 1941, which was repealed on Nov 1, 1991. At the time, estate duty was charged at scale rates of 0%, 5% and 10%. It was not applicable to estates with a value below RM2 million, while the highest tax rate of 10% applied to estates valued at over RM4 million.
I do agree that some form of inheritance tax is fair (just have a look at some other countries' inheritance tax. Owing to evolving times, the threshold may have to be lifted. Maybe estate duty should start for assets over RM4m (e.g. 5%) and the highest threshold of over RM10m at 10%.
2) Capital Gains Tax - Categorically no. The entrepreneurial spirit Malaysia is so proud of should never be curtailed, not even with a small capital gains tax. Being an open economy, we must allow the economy to function as freely as it can. This goes back to the (e) factor cited above.
... in the USA if you sell a stock, you pay 15% (20% for high earners) of any profits you made over the time you held the stock. Those profits are known as capital gains, and the tax is called the capital gains tax. One exception: If you hold a stock for less than a year before you sell it, you'll have to pay your regular income tax rate on the gain - a rate that's higher than the capital gains tax. My gripe is that is you have capital gains tax, then you must also have loss deduction on taxable income ... but that only benefits people with income, what about those with no income (retirees). Please note that the local bourse has one of the highest retail market participation in the world.
3) Property tax for people/companies with large properties - Again no. Same reasons as above. This goes back to the (e) factor cited above.
4) Carbon Tax - I do not think our energy producers are at an efficient enough level to stomach that. Plus I believe it will just be passed onto consumers.
5) Property Stamp Duty - Yes, I do think its plausible to raise that from 3% to maybe 6%, but all first home buyers should be exempt from it.
I would venture to add the following:
6) CPO Export Tax - Currently, the CPO export duty structure fluctuates on a monthly basis at between 4.5 and 8.5 per cent. If palm oil prices hover between RM2,250 and RM2,400 a tonne, the tax is 4.5 per cent. If the prices are between RM2,550 and RM2,700 a tonne, planters will be taxed 5.5 per cent.
While producers complain that these are already non-competitive vis-a-vis Indonesian producers, we all need to tighten our belts. I do not see a single listed CPO counter locally suffering losses. As our main export, the 4.5% can be hiked to 6% while the 5.5% could be hiked to 7%.
7) Tourism Tax - The RM10 per hotel room night tax should stay. It is a well known fact that our 4 and 5 stars hotels are the cheapest in whole of Asia. In addition, a per entry tax for tourists should be imposed, say between RM20-30. I do not think that would deter tourism, in particular, looking at the trend of the ringgit for the past 5 years. If people are detered by that, then I don't think those are the tourists we want to have anyway. We have around 26m tourists annually, that could contribute RM520m-780m a year.
http://malaysiafinance.blogspot.com/2018/10/tread-gingerly-on-taxes.html
Jonathan Keung
any capital tax imposed by the new government is bad for stocks
2018-10-10 10:41