Capital gains tax won’t work, say fund managers

Imposing the tax would allow other countries in the region to catch up to the Malaysian market

By ALIFAH ZAINUDDIN / Pic By MUHD AMIN NAHARUL

A LEVY on capital gains may hinder efforts to boost liquidity and encourage investment in the local stock market, fund managers said.

Prime Minister (PM) Tun Dr Mahathir Mohamad’s recent announcement on additional taxes in the upcoming Budget 2019 has reinforced speculation the government may impose charges on capital gains, tax inheritance and on e-commerce to help pay the large debt at the federal level.

Suggestions have been made to widen the list of tax on capital gains to include gains made on equity trading, in addition to the current taxation on property investments.

Aberdeen Standard Investments Malaysia MD Gerald Ambrose (picture) believes the expansion of the capital gains tax on the share market would not be beneficial to the market or the country.

“I understand it is imperative the government achieve the budget balance they have promised investors, which is not more than a 2.8% deficit of GDP this year. But I don’t think it would be a good idea to impose the tax because the velocity of the Malaysian stock market is not that high anyway,” he told The Malaysian Reserve.

Ambrose said the implementation of the tax would allow other countries in the region like Thailand, Indonesia and the Philippines to catch up to the Malaysian market.

“If you assume that people who are investing in the stock market are hyper-wealthy, and in view of the fact that the difference between the poor and the rich seems to be widening in many countries, including Malaysia, you could argue in theory the capital gains tax is taking money from people who already have it.

“But actually, Aberdeen for example, is managing money for thousands of unit holders and a lot of them are pensioners or people who will become pensioners. So, it becomes a double taxation because whenever we buy shares, we would also pay a transaction levy and other levies. I just don’t think it is a good idea and it would set us back against the competition,” he said.

Rakuten Trade Sdn Bhd VP of research Vincent Lau does not expect the government to pursue a tax on capital gains and said there are other ways for the new administration to raise income.

“I don’t think the government will go through this route, but if they do, the impact will definitely be negative on the equity capital market. Regionally, it will put Malaysia at a disadvantage because the likes of Singapore and Hong Kong do not have a capital gains tax. We need a vibrant capital market to raise funds,” he said.

Former PM Datuk Seri Mohd Najib Razak has warned Putrajaya against implementing a capital gains tax on the sale and purchase of shares.

He said imposing the tax would drive foreign and domestic investors to other markets, which do not have such a tax.

“Such thinking is very populist and welcomed by the people, but its impact is huge. In the end, the economy suffers and so do the people,” he said in a recent Facebook posting.