Jay's market diary
Why I think capital gains tax could be disastrous for Bursa and the country
There are now increasing rumours that capital gains tax will be one of the "new taxes" to be imposed in the coming Budget 2019. For a very long time, shares investment/trading has been seen as "rich people's game" and taxing profit on it could be quite popular with the mass public. Therefore, while it is quite rush to impose a new tax (PH just become government in May) and unlikely any detailed studies have been made, I do not discount the possibility of the new govt to introduce such populist tax.
Personally, I support the idea of capital gains tax. Yes you read it right, I support it. I think fundamentally, taxes represent a redistribution of wealth and so it is not unreasonable to be imposed on any activitites where you make gain/profits. This can then be channelled to the needy/poor or make necessary investments in the country.
But all these are just the concept.
In reality however, I would imagine such tax could be disastrous, not only for investors in Bursa, but also man on the street (they may not realise that yet). I will just summarise a few points below and readers may leave a comment if you agree/disagree with them.
1. Indirect reduction in everyone's wealth (except government)
While many people thought that CGT would not affect their lives since they are "not involved in rich people's game", they fail to realise that a large part of our nation's wealth is in the capital market (equity or bond). Some may not invest directly in the market, but they forgot that they do have money in EPF, Amanah Saham, SOCSO, Tabung Haji, PRS, unit trusts etc. Even Khazanah money is the nation or the people's money. Imposing a tax on their investment activity would reduce the investment worth and everyone's wealth in it.
Imagine your EPF dividend or ASB dividend being reduced because of CGT, now will the public still be happy? To avoid this, govt may put in a counter-measure which I will elaborate in point 2.
2. Limited revenue to be gained
If CGT is to be imposed, It is only fair to tax on the net gains, i.e. if you make RM1,000 and lost RM300 in the same year, you would only be taxed on the RM700 net gain. If you look at the KLCI, last Friday it closed at 1,730. 3 years ago it was 1,745 while 5 years ago it was 1,806. If someone had invested in KLCI for the past 3 or 5 years, he would be staring at a net loss instead of gain. My point is, our market is already lacklustre as it is, how much revenue can the govt reasonably expect to collect, especially once hit by CGT?
There is also a possibility, to avoid the negative publicity associated with point 1 above, the govt may offer exemptions for statutory funds like EPF, PNB etc to be exempted from CGT. But then again, these are among the biggest institutional players in town. And we all know that most of our retail players are on the losing side of the market (some even say as high as 80-90%), so at the end of the day, how much revenue can the govt expect to raise?
And if foreign and retail investors exit our local market (explained in point 3 and 4 below) while GLCs are asked to pare down their stakes, who would be left to invest in our market? Lower demand simply imply prices have to go down and our market could go on a downtrend without recovery. Any hopes of taxing "gains" will also evaporate in smokes.
Bottom line, if CGT is imposed, whatever the figure the govt expect in the budget will most likely be overstated.
3. Death of retail investors and retail brokerage firms
Bursa's retail participation is one of the lowest in the region and this represents an unhealthy market when it is all cornered by institutions. Bursa has been actively tring to rectify that by doing roadshows, education series etc. All these efforts could be wiped out overnight by CGT.
Retail interst is already lacking, imposing a new tax on it will only kill off whatever spark left. Not only the notion of paying tax, but imagine the hassle of filing another tax return. Uncles and aunties who don't understand how CGT works probably will stop investing to avoid paying the wrong amount of tax and get into trouble. This would probably also means the potential death of smaller retail focused brokerage firms such as Kenanga, TA, Jupiter, Malacca etc.
4. Flight of foreign capital and local companies falling into foreigners' hands
When I have the chance to speak with some foreign friends, some are international investors, the most common word I hear when it comes to Malaysia equity or bond market is "boring". This partly could be due to the market lacking vibrancy as it is being cornered by institutions. Our KLCI has been stagnant or decline for the past 3-5 years while our bond market offers neither the higher yields or the higher ratings for lower yields. Add to that the weaker RM, most foreign investors would have lost money in Malaysia for the past few years. Put it simply, our market is not as attractive as what our Prime Minister or Minster of Finance (past or present) or Bursa CEO would like you to believe.
Supporters of CGT would always point to US as an example that people never stop investing there. This is plain stupidity on display. It's not even comparing apple with orange, more like rambutan and durian. They could not have been more different.
US is the largest developed financial market in the world and majority of global assets are denominated in USD. Like it or not, if you are managing large enough of gloabl assets, you can't run away from the US market. But other than US, only a handful of developed countries have CGT. Even Singapore and Hong Kong does not have it, not to mention all our emerging market peers such as China, Indonesia, Thailand, Vietnam etc.
In a globalisation era, imposing CGT would only reduce Malaysia's relative competitiveness. There would be little incentive for foreign investors to stick around especially in an already lacklustre market and a weak currency.
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.
5. Double whammy on RM
Another point I think most fail to realise is what foreign outflow would mean to our currency. Our Prime Minister himself has repeatedly stress that we are a trading nation and so our door will always be open to foreign investments. Unfortunately as a smaller emerging country reliant on trades, we are more vulnerable to external shocks than other developed countries.
If one were to pay attention to financial news, they would know that US Fed is gradually increasing their interest rates. To explain the impact in layman's terms, imagine past few years investing in US Treasuries only give you 0.5% return a year while investing in Malayisa/emerging country gives you 4%. Some would choose to invest in Malaysia because the 3.5% is sufficient to compensate for the additional risk. Fast forward to today, US Treasuries touched 3.25% recently, do you really think Malaysia at 4.2% or other emerging countries are still attractive?
That is exactly what happen to Indonesia and Philipines this year. If you think RM has been weak, FYI RM has depreciated ONLY by 1.7% in 2018 while Rupiah and Peso has depreciated 12% and 8.5% respectively in 2018. There is an emerging market carnage happening around the world in case our new govt fail to realise that. The foreign investment outflow associated with CGT will only worsen the situation.
Think I'm exaggerating? Foreign investors turned bearish on Malaysia back in around Sept 2014 when crude oil prices started free falling. When they exited our market in droves, USD/RM depreciated from 3.15 in Sept-14 to 4.43 in Jan-16, 40% in around 15 months. It's a downward spiral, a weak RM cause high imported inflation, lower spending power and weaker economy which in turn cause more weakness in the currency. I don't think any Malaysians (except exporters) enjoy that ride very much. Another 40% depreciation would bring USD/RM to 5.80. Impossible? Cannot imagine that? Few people can also imagine RM to break below 3.80 (1997 level) a few years back.
It may not be that severe but question is, do we really want to risk it?
Summary
Now, you would understand that why, depsite me supporting the CGT conceptually, I still think it is unrealistic and potentially very damaging to our country to impose it, especially in this volatile and vulnerable times. Being idealistic is good, but being unrealistic is dangerous. The nation's economy and people's lives are at stake.This is not a social experiment or simulation and there is no simple undo button. Whatever the govt does can potentially cause irreversible damage.
I implore the govt to think through not just CGT but any of the new taxes to be imposed thouroughly. The country may be in bad shape because of mismanagement in the past but rushing into rash decisions is unwise. Even as a person, we know that you can't cure a sick individual by pumping 10 different medicine at one time (it would just kill him). Proper discussions and consultation is necessary before any new taxes are to be imposed to evaluate the potential impact and it's not necessary to have them rushed in Budget 2019 if there's insufficient time.
People voted for not just a clean but also wise government. Sometimes, doing the wrong things with the right intention is simply not good enough...
More articles on Jay's market diary
Further explosing FundMyHome and how the scheme shortchanges property buyers
Created by Jay | Nov 17, 2018
Why I think someone have insider news on Budget 2019 and P2P lending for homes may not work
Created by Jay | Nov 05, 2018
Discussions
11 people like this. Showing 50 of 108 comments
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 17:12
CGT x going to work
Lebih baik tax gain from super profit from like weak ringgit or high oil price
2018-10-14 17:15
Tengok, komen bodoh lagi.
Biasanya saya tak cakap apa. Tapi, u ni suka perhatian sy.
Aih...
Amik duit keluar letak dalam fd lah, jgn nanti gaji 3 tahun semua buang!
======
Posted by SarifahSelinder > Oct 14, 2018 05:15 PM | Report Abuse
CGT x going to work
Lebih baik tax gain from super profit from like weak ringgit or high oil price
2018-10-14 17:18
Don't forget our insurance premium may need longer payment with CGT. I was told large premium protion was invested in local equity.
CGT will create a butterfly effect..
2018-10-14 17:22
Kepala buto apa u yg bodoh
Apa yg bodoh ni
Kan gomen dah tax kepala sawit bila high price
Bikin tax mcm tu la
Posted by Jon Choivo > Oct 14, 2018 05:18 PM | Report Abuse
Tengok, komen bodoh lagi.
Biasanya saya tak cakap apa. Tapi, u ni suka perhatian sy.
Aih...
Amik duit keluar letak dalam fd lah, jgn nanti gaji 3 tahun semua buang!
======
Posted by SarifahSelinder > Oct 14, 2018 05:15 PM | Report Abuse
CGT x going to work
Lebih baik tax gain from super profit from like weak ringgit or high oil price
2018-10-14 17:22
Ada rumor gomen kan tax extra profit gain fr weak ringgit jaga jaga co mcm poh huat lihien
2018-10-14 17:25
What are the trade offs?
What are the effects?
How does it affect the dynamics of oil palm price, its competitiveness vs soy and corn etc?
what are the 2nd and 3rd order effects?
Semua taktau, tak pikir.
Hanya tau cakap tax kelapa sawit mcm burung nuri.
=====
Posted by SarifahSelinder > Oct 14, 2018 05:22 PM | Report Abuse
Kan gomen dah tax kepala sawit bila high price
Bikin tax mcm tu la
2018-10-14 17:26
Mungkin x kan o&g yg half dead tapi jaga jaga yg untuk from weak ringgit
2018-10-14 17:32
Thank you, Jon Choivo.
------------------------------------
Jon Choivo Moneysifu,
In the US etc, brokerages etc keep track for you. You just pay on the amount shown net of trans cost.
14/10/2018 16:13
2018-10-14 17:33
Wow, Engineering Profit is a great composer. Salute to u.
///Posted by EngineeringProfit > Oct 14, 2018 05:12 PM | Report Abuse
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 17:35
a.k.a. EngineeringBudayaTelusKerja
https://www.freemalaysiatoday.com/category/opinion/2018/10/14/rehab-programme-in-prison-vital-for-sex-offenders/
Can't imagine with ballooning of the number of civilians, yet they do not bother to do even 'the above'...
.....overlooked? thoughtless?
Bagai tukul dengan pahat.....
... .waiting to be discovered...and told to do their job properly
2018-10-14 17:36
Untung bukan dari operasi tp dari weak ringgit bila negara suffering patut tax profit yg buta ni
2018-10-14 17:36
Bila buat bines mcm mcm tax insentif mahu kini super profit dari weak ringgit patut ditax
Co kondom dan sarung tangan patut yg export patut ditax
2018-10-14 17:46
Thanks for all the comments. As expected, readers here are overwhelmingly against CGT, most likely due to self-interest.
But self-interest apart, I do worry of the new taxes and their potential impact to our economy. Our largest trading partner China is suffering at the moment and dark clouds are forming in global economy. Hope our govt does not throw in any reckless measures in Budget 2019.
2018-10-14 18:38
These are my views
1. I fought so hard for PH to win in GE14. I believe many others did too.
2. I was even arrested by the police in BUKIT AMAN for being anti Najib and anti BN.
3. I spent 4 days in jail. Being verbally abused on a daily basis.
4. Now that PH has won and formed the government. I was one of the happiest person in the world.
5. And now PH is asking the 33 million rakyat to pay additional taxes in order to resolve the issues created by group of ex ministers from those in BN who stole?
Wow.
6. Be careful PH. We the rakyat will just topple u in GE15.
So what can PH do??
A. Identify those thieves who stole. Najib, rosmah, zahid, jho low, sharizat etc.
B. Identify their assets and caveat those assets.
C. Pass a law to confiscate these assets.
D. UK has already enforced the *Unexplained Wealth Order.* What is so difficult to seize the obscene wealth of the BN cronies.
Share if you agree
These are my views
1. I fought so hard for PH to win in GE14. I believe many others did too.
2. I was even arrested by the police in BUKIT AMAN for being anti Najib and anti BN.
3. I spent 4 days in jail. Being verbally abused on a daily basis.
4. Now that PH has won and formed the government. I was one of the happiest person in the world.
5. And now PH is asking the 33 million rakyat to pay additional taxes in order to resolve the issues created by group of ex ministers from those in BN who stole?
Wow.
6. Be careful PH. We the rakyat will just topple u in GE15.
So what can PH do??
A. Identify those thieves who stole. Najib, rosmah, zahid, jho low, sharizat etc.
B. Identify their assets and caveat those assets.
C. Pass a law to confiscate these assets.
D. UK has already enforced the *Unexplained Wealth Order.* What is so difficult to seize the obscene wealth of the BN cronies.
Share if you agree
These are my views
1. I fought so hard for PH to win in GE14. I believe many others did too.
2. I was even arrested by the police in BUKIT AMAN for being anti Najib and anti BN.
3. I spent 4 days in jail. Being verbally abused on a daily basis.
4. Now that PH has won and formed the government. I was one of the happiest person in the world.
5. And now PH is asking the 33 million rakyat to pay additional taxes in order to resolve the issues created by group of ex ministers from those in BN who stole?
Wow.
6. Be careful PH. We the rakyat will just topple u in GE15.
So what can PH do??
A. Identify those thieves who stole. Najib, rosmah, zahid, jho low, sharizat etc.
B. Identify their assets and caveat those assets.
C. Pass a law to confiscate these assets.
D. UK has already enforced the *Unexplained Wealth Order.* What is so difficult to seize the obscene wealth of the BN cronies.
These are my views
1. I fought so hard for PH to win in GE14. I believe many others did too.
2. I was even arrested by the police in BUKIT AMAN for being anti Najib and anti BN.
3. I spent 4 days in jail. Being verbally abused on a daily basis.
4. Now that PH has won and formed the government. I was one of the happiest person in the world.
5. And now PH is asking the 33 million rakyat to pay additional taxes in order to resolve the issues created by group of ex ministers from those in BN who stole?
Wow.
6. Be careful PH. We the rakyat will just topple u in GE15.
So what can PH do??
A. Identify those thieves who stole. Najib, rosmah, zahid, jho low, sharizat etc.
B. Identify their assets and caveat those assets.
C. Pass a law to confiscate these assets.
D. UK has already enforced the *Unexplained Wealth Order.* What is so difficult to seize the obscene wealth of the BN cronies.
Share if you agree
y
These are my views
1. I fought so hard for PH to win in GE14. I believe many others did too.
2. I was even arrested by the police in BUKIT AMAN for being anti Najib and anti BN.
3. I spent 4 days in jail. Being verbally abused on a daily basis.
4. Now that PH has won and formed the government. I was one of the happiest person in the world.
5. And now PH is asking the 33 million rakyat to pay additional taxes in order to resolve the issues created by group of ex ministers from those in BN who stole?
Wow.
6. Be careful PH. We the rakyat will just topple u in GE15.
So what can PH do??
A. Identify those thieves who stole. Najib, rosmah, zahid, jho low, sharizat etc.
B. Identify their assets and caveat those assets.
C. Pass a law to confiscate these assets.
D. UK has already enforced the *Unexplained Wealth Order.* What is so difficult to seize the obscene wealth of the BN cronies.
Share if you agree
2018-10-14 18:41
I wrote this article hopefully to raise some awareness, after realising how little the man on the street understand this issue when I was talking to a friend.
Feel free to share this article or spread the word. I may not be entirely right, but at least others would get the chance to see this issue from another perspective.
2018-10-14 18:45
government should now come out with an 'online poll portal' to hear the voices of rakyat instantly..for weighing rakyat response on any of their proposed policies
2018-10-14 18:51
this would serve as a tool for them to be sensitive to the majorities opinions and needs...they need not wait 5 years to find out.
2018-10-14 18:53
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 to investors; not 100% always gaining only.
2018-10-14 19:50
tax on palm oil better la , 5kg only RM20-23 , tax until slightly below neighbor country price , benefits?
1. curb smuggle , 2. increase national income , 3. promote better general health
don't forget tax on soda too , since can't tax fat people , make them pay more on their purchases
2018-10-14 20:10
higher duty on imported cars lor....let the richman who wants luxury car to show off pay lor.....
2018-10-14 20:16
Thank you for your compliment, hollandking and pussycats ( you contributed a paragraph too )
2018-10-14 20:16
the introduction of CGT will lead the downfall of PH .
Jon Choivo knows nothing of malayisia politics.he is too young and naive.
2018-10-14 20:54
Jon Choivo a kepala buto yg cuma a tahu few formulas for value investing dan Warren Buffett here Warren Buffett there
2018-10-14 21:38
say, untung RM100, CGT 3 to 5% = RM3 or 5, ok lah :)
hello u all dreaming ka.....if loss gomen give discount in cgt ka mana ada make sense punya tax
confirm tax on the purchase amt la
2018-10-15 01:47
Fake Speedy Boy aka Fortune Bull the Firstclass Bullshitter... a person like you without any integrity and credibility better stop talking nonsense. Such a coward like you dare not even use your own ID Fortunebull. Just shut up. You are only good at faking the IDs of other people..
2018-10-15 12:06
Bring Jib back as Finance Minister, Jib has lot of ideas to prop up msia economy... kikiki
Our PHgov no other ideas how to save msia? only knows how to tax people just like BNgov...
2018-10-15 19:49
Wow! Great sharing my the sifu Jay finally..... Jay, please lah contribute more here
2018-10-15 19:51
Good article...!!!
Frankly Speaking: CGT on listed shares unlikely | http://www.klsescreener.com/v2/news/view/443492
2018-10-15 22:16
I think gov will do anything to get money... brace for more more new taxes.
My deduction is if Ph can terminate Gamuda-Mmc mrt2 project...what more to say, gov can't impose CGT?
This Ph is determined at all cost to pare down our 1 trillion debts...so anything can happen... including imposition of CGT...
matikatak to bilis in Bursa.
2018-10-15 22:59
last time people in msia said Gst won't be implemented... because of these reasons... bla bla bla
At last Jib did implement Gst.... masih lupakah?
2018-10-15 23:03
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Jon Choivo
Aiyo,
Serifah ni pompuan kasar....
Buli lelaki...
HAHAHAHAHAHAHAHA
Woman, you need to level up, before you lose everything in stock market.
I suggest you take everything out put in FD, or buy china index.
=====
Posted by SarifahSelinder > Oct 14, 2018 05:04 PM | Report Abuse
Jon Choivo
Puki mak lu
Posted by SarifahSelinder > Oct 14, 2018 05:05 PM | Report Abuse
Jon Choivo
Anak haram
Posted by SarifahSelinder > Oct 14, 2018 05:06 PM | Report Abuse
Jon Choivo
U idiot
Posted by SarifahSelinder > Oct 14, 2018 05:06 PM | Report Abuse
Jon Choivo
U kepala buto
2018-10-14 17:08