Image credit: The Straits Times
PETALING JAYA: The government’s move to impose capital gains tax (CGT) on the disposal of unlisted shares by companies will not translate into substantial revenue for the nation but is seen as punitive to small businesses.
“How much of the needle will it actually move? Shouldn’t the CGT be applied to the overall capital markets as well?” MARC Ratings Bhd chief economist Ray Choy said.
“Why single out unlisted shares? This is the issue of allocating efficiency. In the unlisted markets, there are a lot of companies still under incubation (stage) and smaller companies at the stage of development.
“That will include shares held by venture capitalists and private equity investors. Would it be slightly counter productive to tax this particular segment on a blanket basis?” Choy added.
As it is, there are limited initiatives and catalysts in Malaysia to encourage investment activities in startups and incubators.
Introducing CGT on unlisted markets could affect the investment appetite of investors who undertake great risks in making seed investments.
This may potentially deter such investments that are critical to supporting local entrepreneurs and startups.
The CGT on listed markets has been adopted in other countries.
For example, in India, gains on listed shares held for more than 12 months are taxed at a concessional rate of 11.96%, while if held for more than 24 months, the taxable rate is 23.92%.
Short-term gains on listed shares are taxable at 17.94% and on unlisted shares are taxable at applicable slab rates.
Meanwhile, Small and Medium Enterprises Association of Malaysia national president Datuk William Ng was disappointed with the introduction of the blanket CGT under Budget 2024, as this would hurt SMEs disproportionately
He added that it is painful to see full-time share punters, who are not adding any value to the economy or industry, are exempted from any tax, while SMEs which are already contributing to corporate income tax, will be taxed upon their retirement, sales of business or when bringing on board new investors.
Choy pointed out that imposing CGT on the stock market could help in reducing speculative activities and encourage investors to have a longer holding period on the shares.
“The overall financial and stock markets are infrastructure, which is being set up by the government.
“Having some form of CGT on the stock market will have some reciprocal benefit to the government in terms of revenue,” he said.
Choy believed that imposing tax on the gains on selling shares will not not be burdensome to investors, as those who buy shares on the stock market belong to a higher-income bracket group.
“It is therefore possible to consider CGT as a progressive tax that taxes the wealthier income segments of society by imposing GST on the stock market,” he added.
While tax adviser and vice-chair of Global Tax Commission of the International Chamber of Commerce, Paris Veerinderjeet Singh, concurred that the CGT to be imposed on unlisted shares will not move the needle much, such a measure is relevant in the context of what is happening in other countries.
“What we should do on listed shares is to have a transaction tax, which is basically stamp duty.
“That’s how many countries solve the problem; 0.01% of the value is basically the tax imposed and so on.
“That is how some of the Asian countries tax listed shares but you cannot impose a 10% blanket rate on listed shares as the stock market will collapse,” he explained.
Despite the call for the CGT to be imposed on public listed shares, Finance Ministry secretary-general of treasury Datuk Johan Mahmood Merican brushed aside the idea of implementing CGT on listed shares.
“We have absolutely no intention to introduce CGT on listed shares.
“Just to be clear, currently, the Employees Provident Fund, Permodalan Nasional Bhd and the Retirement Fund Inc are all exempted from taxes, as they are managing people’s money.
“Certainly there will be many issues if CGT were to be implemented on listed shares,” he said.
Source: https://www.thestar.com.my/business/business-news/2023/10/23/calls-for-govt-to-extend-cgt-to-listed-shares