Capital gains, inheritance and carbon taxes can reduce debt

Govt can introduce tax on capital gains including equities, which an analyst deems as long overdue


The government may impose a levy on capital gains and tax inheritance, impose charges on e-commerce and force environmentally damaging operations to pay additional charges, as Putrajaya seeks to plug a financial hole in its budget.

Prime Minister Tun Dr Mahathir Mohamad on Tuesday floated the idea of additional taxes in order for the government to meet its administration, development and debt obligations.

The administration is saddled with a RM1 trillion debt, ballooned by rising contingent liabilities and government-backed loans. It had removed the wide-ranging consumption tax, the Goods and Services Tax (GST), which had delivered about RM42 billion to the previous government.

Putrajaya has been aggressive in trimming its expenditure, cancelling and delaying mega projects. But the administration is saddled with a RM100 billion annual emolument payment for government officers and pensioners, besides the costs of servicing billions of debts and sukuk.

Malaysian Tax Research Foundation trustee SM Thanneermalai said the government can introduce a tax on capital gains, which he deemed as long overdue. He said many economies in the region, including Thailand and the less developed Vietnam, have imposed the tax.

“It should be expanded to include other capital gains, such as from equities, and should not be limited to real estate. People can make noise, but this is where exemptions can come in,” he told The Malaysian Reserve yesterday.

Gains from property deals are exempted from tax if the sale occurred in the sixth year. The rates vary from 30% in the first three years to 0% for the sixth year onwards.

Billions worth of property are transacted in the country every year.But Malaysia also does not tax on the gains from the equity market, bonds and precious metals transactions.

Thanneermalai said the government should widen the list and at least include equities and consider the reintroduction of inheritance tax.

He said while the tax could help the government raise revenue, the taxable threshold of inheritance tax should be high to avoid problems.

“I think this should only be done if it involves a high amount…maybe RM10 million and above,” he said.

“As a countermeasure, the government can reduce corporate tax. Right now, the figure is too high,” Thanneermalai said.

The effective corporate rate is 24%. Tax payers were expecting personal and corporate income taxes would come down with the introduction of the GST.

Maybank Kim Eng senior economist Chua Hak Bin said the property stamp duties should be raised for local and foreign buyers.

He said the existing 3% to 3.5% are relatively low compared to other countries in the region including Singapore, which levies three times higher.

“I think a stamp duty is more functional,” he said, but was against imposing capital gains tax on stocks.

Asian Development Bank principal economist Dr Bernard Ng said the government could impose a new tax on fossil fuel or a carbon tax.

He said such environment tax will boost the country’s earnings, as well as achieve its pledge to cut carbon emissions by 45% by 2030.

However, RHB Research Institute Sdn Bhd VP and head of economics research Peck Boon Soon rejected calls for taxes on equity and inheritance asset.

“These new taxes, if implemented, will be quite negative for Malaysia in the long term as it will affect the people’s mindset of Malaysia as an investment destination,” Peck said.

Presently, equity market players who make a killing at the local stock markets are not levied any taxes, but they are required to declare in their personal income tax.

  • Para (4) has been edited and replaced based on the correctness.