Exemption of CGT and taxes on FSI deemed to boost capital market performance

KUALA LUMPUR: The exemption of capital gains tax (CGT) is needed to boost capital market performance and also to benefit over 90 per cent of investments in the unit trust industry 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 per cent 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 told BK.

On Tuesday, the government has agreed to exempt CGT from Jan 1, 2024 to Dec 31, 2028 and taxes on foreign sourced income from unit trusts from Jan 1, 2024 – Dec 31, 2026.

Second Finance Minister Datuk Seri Amir Hamzah Azizan indicated that through various engagements, one unintended consequence impacted by the CGT is on unit trust as more than 90 per cent of unit trust holders are 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 per cent 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 Dr 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 Jan 1, 2024 to Dec 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,” Mohd Afzanizam said. – BK