AS expected, the double whammy of from the one-off cukai makmur a.k.a prosperity tax and stamp duty hike on contract notes have dealt a knee-jerk effect across the local bourse this morning.
As rightly envisaged by Kenanga Research, cukai makmur – despite its one-off nature – will hit the upper tier of corporate Malaysia while the upward revision in stamp duty structure may dent near term investor participation in Bursa Malaysia.
“Our year-end FBM KLCI target is adjusted downwards only slightly from 1,611 to 1,601 on account of a one-off hit to earnings per share (EPS) of 10 sen or 9%, representing an implied 16.3 times forward price-to-earnings ratio (PER) on FY2022E reduced EPS from RM1.08 previously to 98 sen,” projected head of research Koh Huat Soon and his team in a Budget 2022 review.
Budget 2022 tabled by Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz last Friday (Oct 29) has proposed the implementation of cukai makmur to meet greater funding support for those impacted by the COVID-19 pandemic.
It entails a one-off 24% tax on corporates for their first RM100 mil taxable income and 33% in excess of that for the 2022 assessment year.
As taxable income in excess of RM100 mil will be subjected to an additional 9% tax rate (given the current statutory tax rate of 24%), the EPS of the FBM KLCI could be reduced by 9% from RM1.08 to 98.1 sen according to Kenanga Research’s estimates.
“We project that based only on the 30 FBM KLCI component stocks, the Government stands to gain an incremental RM5.8 bil additional tax income from this measure,” opined the research house.
In a related development, Kenanga Research also noted that costlier transaction costs for trading of listed securities may dampen high frequency trades.
Currently, the stamp duty rate on contract notes is 0.1% subject to a ceiling of RM200 while a service tax of 6% is imposed on brokerage whereby for a typical retail trade is 0.5% of value traded (lower than 0.5% for larger institutional trades).
Under the new measures, stamp duty is now raised to 0.15% with the ceiling and service tax removed.
“Essentially this measure will lead to higher transaction cost for trading,” justified Kenanga Research. “Where in the past, a large trade for a retail investor involves transaction cost of 0.53% (mainly brokerage plus service tax), it now increases to 0.65% (brokerage plus stamp duty) or approximately an increase of 0.12%.”
While the higher cost may look like a market dampener, the impact may actually be limited considering the cost increase is small in percentage terms, according to the research house.
“In the context of a long-term institutional investor who typically looks for 10% return, an additional 0.12% cost to overcome may be tolerable but short-term traders would likely feel the pinch,” it reckoned.
“This may deter high frequency brokerage paying traders but less so for long-term equity investors and should have no impact on investment account traders (IVT) and proprietary day traders (PDT).”
However, all things considered, Kenanga Research added that such move could potentially be a negative for Bursa Malaysia Bhd (“outperform”; target price: RM8.20). – Nov 1, 2021
