THE recent decision by the Finance Ministry (MOF) to extend its tax exemption on foreign sourced dividend (FSI) for corporates till Dec 31, 2026 will reduce earnings risks for companies with large overseas investments.
CGS-CIMB Research said it had been concerned about the Government’s earlier decision to withdraw tax exemption on FSI under Budget 2022 for public listed companies (PLCs) as such change will permanently affect future income streams from overseas investments.
“This is positive for Sime Darby Bhd, Sime Darby Plantations Bhd, PPB Group Bhd and Kuala Lumpur Kepong Bhd based on initial assessments,” reckoned head of research Ivy Ng Lee Fang in a Malaysia strategy note.
On Dec 30 last year, the MOF reversed its decision by agreeing to exempt all types of FSI of individuals from tax and extended the exemption for foreign source dividend incomes earned by limited liability companies and partnerships for five years effective Jan 1, 2022.
For non-resident taxpayers (individuals, companies, and others), they will remain exempted from income tax for FSI.
MOF also announced that foreign income received in the 2022 year of assessment is exempted from tax calculation for the purpose of prosperity tax. Prior to this, MOF had proposed to withdraw tax exemption on FSI from Jan 1, 2022.
Elsewhere, CGS-CIMB Research also viewed MOF’s decision to impose a stamp duty of 0.15% on share contract notes up to a maximum of RM1,000 as positive for stockbrokers and Bursa Malaysia as the higher cap on stamp duty for the next five years will improve Malaysia’s competitiveness against its MIST (Malaysia, Indonesia, Singapore and Thailand) peers.
“The FBM KLCI has reacted positively to this news and window -dressing activities, gaining 23.92 points or 1.55% on the last trading day of the year or Dec 31, 2021,” observed the research house.
“This positive is partly offset by concerns over Omicron, return of intraday short selling effective Jan 1, 2022 and flooding risks in Malaysia.”
During the tabling of Budget 2022 on Oct 29, the Government had proposed a hike in the stamp duty rate to 0.15% versus 0.1% and for the abolition of the RM200 cap on the duty effective Jan 1, 2022.
“This will lower transaction costs for the trading of shares. We estimate the latest decision will cut total transaction costs for Malaysia from 0.32% to 0.2% for US$1 mil (RM4.2 mil) trade value, assuming a brokerage rate of 0.15%,” suggested CGS-CIMB Research.
“This is because the stamp duty costs will decline to RM1,000 from RM6,300 (under Budget 2022’s proposal to remove cap on stamp duty).”
All-in-all, the research house kept its end-2022 FBM KLCI target of 1,612 points with its top three picks being Hong Leong Bank Bhd, Inari-Amertron Bhd and QL Resources Bhd. – Jan 3, 2022
