The new CG tax will be detrimental to local investments
KUCHING: The introduction of a capital gains tax (CG) on stock exchanges / investments would worsen the performance of the local stock market, comments the Sarawak Remisier association, and could lead to capital flight.
This was in response to a government proposal to study and put in place the implementation of a higher single tax rate to be imposed on businesses that generated extraordinary profits during the Covid-19 pandemic.
According to Chairman Tan Wi Ming, this is because Bursa Malaysia has been one of the worst performing markets and its foreign stake is at its lowest, as reported in August 2021.
“Imposing a capital gains tax on trade / investment in stocks would worsen the situation and lead to capital flight not only from foreign funds, but also from local funds / retailers,” Tan told the Borneo Post.
“Other Southeast Asian markets such as Singapore, Indonesia and Thailand do not impose capital gains tax on stock exchanges. Online trading allows investors to trade most of the stock markets from anywhere in the world and Bursa has definitely lost local investors who are starting to trade in larger exchanges such as HK and the United States.
Recently, the Securities Commission launched a five-year Capital Market Master Plan (CMP3) which serves as a strategic framework for the growth of Malaysia’s capital market. Imposing a new tax such as the capital gains tax on stock exchanges would definitely put a damper on CMP3, Tan said.
“Will the proposed capital gains tax be similar to the Real Estate Gains Tax (RPGT) model?” If this is the case, traders would be less tempted to trade frequently, which would result in a much lower trading volume, ”added Tan.
“The current stamp duty on stock exchanges has allowed the government to collect more as the volume of trade has increased. A six percent service tax is also imposed on brokerage.
“There is also the issue of the complexity of imposing capital gains tax on stock exchanges. Is there a proper study or understanding of trading activities before proposing a capital gains tax on equity trading? “
Tan went on to explain that one of the reasons for the increase in trading activity at Bursa Malaysia was due to the low commissions in addition to the ease of trading online using computers or mobile apps.
“A trader can make a few trades per day or over a short period of time and not all trades will be profitable. The government will collect revenue in the form of stamp duties and taxes on services, whether it is profit or loss.
“By imposing a capital gains tax, will the trader be able to deduct his losing trades from profitable trades?” Generally, the more frequently a person trades, the more likely they are to lose in the long run, ”Tan explained.
“Some people think the trader can easily make a few thousand ringgits a day and should pay capital gains tax. Anyone who can use a smart phone to trade online is as easy as ABC and very little capital is required to start trading.
“If profits could be made so easily from trading, there wouldn’t be so many people in financial difficulty going from the white flag in search of financial aid.
“Taxing capital gains on the stock market would not only reduce government revenue, but rob the capital market of much-needed fund. “