KUALA LUMPUR: The government may generate at least RM9.5 billion from Malaysia's "rich" listed firms via "Cukai Makmur" or prosperity tax proposed in 2022 Budget for corporates earning in excess of RM100 million, analysts estimate.
They say the prosperity tax is a negative surprise and expect investors to react adversely to the massive but one-off tax.
"Cukai Makmur" is a prosperity tax of 33 per cent for companies posting earnings in excess of RM100 million in 2022.
This entails a one-off windfall tax whereby chargeable income for the first RM100 million will be subjected to the existing corporate tax rate of 24 per cent and anything in excess of that will be taxed at 33 per cent for 2022's assessment
Based on Affin Hwang Capital's coverage of 118 listed companies, 85 will be affected, resulting in an additional tax charge of RM9.5 billion.
This is about 11.5 per cent of Affin Hwang's 2022 corporate earnings forecast.
"It will effectively wipe out our current market EPS (earnings per share) growth forecast of 1.2 per cent,' Affin Hwang said in its 2022 Budget review.
"The prosperity tax came as a negative surprise and the market would likely react adversely to this massive but one-off tax."
The firm, however, said Bursa Malaysia's benchmark FBM KLCI had already lost 3.3 per cent over the past seven trading days while price eanrings valuations for the market remains below the -1SD (standard deviation) levels.
Hence, Affin Hwang thinks that sharp downside to the FBM KLCI will be limited.
"We would however take any market weakness as an opportunity to position in the recovery/reopening plays (banks, retail Reits, gaming, airlines, brewers) as the Covid-19 situation improves," it added.
Affin Hwang maintains its "Overweight"call on the FBM KLCI and its year-end target of 1,780 points.
Hong Leong Investment Bank Bhd (HLIB) said "Cukai Makmur" presents a one-off earnings hit to the upper tier of corporate Malaysia while changes in the stamp duty structure may dent near term investor participation in the market.
"Perhaps the most obvious hit from 2022 Budget is the Makmur Tax, denting the upper tier of corporate Malaysia. Using our calendar year 2022 forecasted group earnings for the FBM KLCI constituents (though not necessarily methodologically correct), we estimate the tax would reduce our baseline projection by 11.4 per cent."
HLIB, however, said its actual impact might be lower as the tax is likely at the individual subsidiary level rather than group resulting to a lower taxable earnings base and foreign subsidiaries that contribute to group earnings should be exempted from this.
Higher taxes aside, the firm believes there may be a secondary effect to corporate earnings - whereby companies may delay profit recognition to mitigate the higher tax impact and/or undertake kitchen sinking exercises since earnings would already be hit by the higher tax.
Pending more clarity from the corporates under its coverage on their respective tax impact, HLIB keeps its end-2021 FBM KLCI target unchanged at 1,640.