CGS-CIMB Research is now neutral over prospects of tax measures from Budget 2022 given the Finance Ministry (MOF) expects lower tax collection from cukai makmur a.k.a prosperity tax of RM3.9 bil which is below the research house’s earlier estimated impact of RM4.4 bil on FBM KLCI earnings.
However, the research house expressed concern that this could be offset by potential additional tax revenue from the removal of income tax exemption on foreign sources income – estimated at RM1.2 bil – which was not captured in its earlier assessment on the earnings of FBM KLCI component counters.
“Overall, we are neutral following our meeting with the Finance Ministry (MOF) as the FBM KLCI has declined by 2% to reflect the tax concerns,” noted head of research Ivy Ng Lee Fang in a strategy note. “The Government has estimated that it could potentially collect around RM1.2 bil from taxing foreign source income received in Malaysia in 2022F.”
CGS-CIMB Research recently met the MOF’s tax division to discuss some of the Government’s proposed tax measures announced in Budget 2022.
The meeting focused on five key tax measures, namely (i) the one-off cukai makmur; (ii) the removal of income tax exemption on foreign source income; (iii) the 50% rise in stamp duty on share trading and abolishment of stamp duty limit; (iv) changes in windfall profit levy rate for palm oil players; and (v) plans to extend the scope of sugar tax.
In Budget 2022, the Government announced the one-off cukai makmur whereby profit above the RM100 mil threshold would be taxed at 33% instead of the headline 24% in the year of assessment 2022.
The Government has expected to collect about RM3.9 bil from this one-off tax, predominantly from the manufacturing, banking and utilities sectors.
Concurrently effective Jan 1, income tax will also be imposed on residents in Malaysia on income derived from foreign sources and received in Malaysia. The types of income that are taxable are dividend income, interest income, rental income, employment income and others which are revenue in nature.
“We gather that foreign-sourced income will only be taxed if the income is remitted to Malaysia. This is likely to impact companies with foreign subsidiaries that consistently remit dividend income to the investment holding company in Malaysia,” CGS-CIMB Research pointed out.
“However, the impact will be lower if dividend income remitted is net of tax at the source country as the tax paid is claimable as tax credit. This arrangement would address double taxation concerns.”
Elsewhere, the research house added that the Government may generate additional net revenue of RM400 mil from the following Budget 2022 changes: (i) a 50% rise in stamp duty rate on contract notes for trading of shares on Bursa Malaysia to 0.15% from 0.1%; (ii) abolishment of stamp duty limit of RM200; and (iii) exemption of 6% service tax on brokerage services related to share trading. – Nov 10, 2021
