KUALA LUMPUR – The exemption of capital gains tax (CGT) is needed to boost capital market performance and also to benefit the over 90% of investments in unit trusts that are made by individual investors.
PwC Malaysia tax partner Jennifer Chang said the exemption would encourage more unit trusts to be set up in the capital market.
“If you impose CGT on unit trusts and you impose taxes on foreign-sourced income from unit trusts, indirectly you are taxing people because over 90% of unit trust holders (are ordinary people).
“It makes sense to exempt unit trusts because if you and I (individuals) invested directly in Malaysian companies or in foreign investments, we are not taxed when we make capital gains or we bring back the money from overseas. If this exemption promotes investments in unit trust, then it would mean more unit trusts will be created,” she said.
The government had agreed yesterday to exempt CGT from January 1, 2024 to December 31, 2028 and taxes on foreign-sourced income from unit trusts from January 1, 2024 to December 31, 2026.
Finance Minister II Datuk Seri Amir Hamzah Azizan indicated that through various engagements, one unintended consequence impacted by the CGT was on unit trusts as more than 90% of unit-trust holders were individuals.
CGT was first announced in Budget 2024 by Prime Minister Datuk Seri Anwar Ibrahim. From March 1, 2024, CGT will be imposed on disposal of unlisted shares by companies and for shares acquired before March 1, 2024, the disposer can choose to pay CGT of 2% on the gross disposal value or 10% on the net gain on disposal.
For shares acquired on or after March 1, 2024, the CGT rate will be 10% on the net gain and exemptions may apply on disposals in certain circumstances, such as upon initial public offerings approved by Bursa Malaysia and internal group restructuring exercises.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the exemption would reduce the cost of doing business and would give more time for industry players to familiarise themselves with CGT as the exemption will only run between January 1, 2024 to December 31, 2028.
He added that the move would help improve unit-trust holders’ net investment returns.
“In some ways, the government is being pragmatic in its approach to ensure its fiscal position is sound by striking the right balance between solidifying its financial position while at the same time keeping an environment that would encourage our society to save and invest responsibly via unit trusts.
“Effectively, this can have a positive spillover effect on Bursa Malaysia and capital market industries,” Afzanizam said. – January 17, 2024