KUALA LUMPUR: The government has decided not to impose capital gains tax (CGT) as well as taxes on foreign-sourced income (FSI) on unit trusts, which according to economists, will make investments by foreign investors and Malaysians more attractive.
The exemptions, announced by Second Finance Minister Datuk Seri Amir Hamzah Azizan today, are set to last until Dec 31 2026 for FSI, and until Dec 31 2028 for CGT.
The exemption of the CGT, which was originally proposed in the revised 2023 Budget by Prime Minister Datuk Seri Anwar Ibrahim, followed comprehensive feedback from various engagements.
The tax had raised concerns over its potential impact, especially on unit trusts.
The CGT was supposed to start on March 1 this year at the rate of 10 per cent. The prime minister had said the tax was projected to yield about RM800 million in annual revenue.
The exemption on FSI, meanwhile, is a departure from a previous proposal in the 2022 Budget that aimed to tax Malaysian residents on income sourced from abroad.
Amir Hamzah said the exemptions were to ensure that the rakyat will continue to benefit wholly from the gains of their hard-earned money, and invest for their future.
"The government will continue to make capital market investments in Malaysia rakyat-friendly. In line with international best practices and to expand the tax base, the government introduced the CGT in 2024 Budget," he said at the launch of the exchange's new logo in conjunction with the introduction of Bursa Gold Dinar.
The scope for CGT, Amir Hamzah added, focused on gains from the disposal of unlisted shares by companies. Disposals of listed shares and disposals by individuals are not subject to CGT.
"Through the various engagements we've had on this matter, it has come to our attention that one unintended area impacted by CGT is unit trusts, given that more than 90 per cent of unit trust holders are individuals.
"I want to assure you that this government values feedback and engagements. I am pleased to announce that the government has agreed to exempt the imposition of CGT as well as taxes on FSI on unit trusts," he said.
Economists said the reversal in taxing FSI is seen as a strategy to attract more foreign investment and stimulate economic growth.
The CGT waiver, on the other hand, is a significant move that can stimulate domestic investment and ensure that Malaysians reap the full benefits of their investments, they said.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the CGT exemption will reduce the cost of doing business and give more time for industry players to familiarise themselves with CGT come 2029.
He added that the decision would not hamper the efforts to improve government revenue stream.
The exemptions were based on the engagement between the Finance Ministry with the various stakeholders, he said, adding that in some ways, the government was being pragmatic in its approach to ensure its fiscal position is sound.
This is by striking the right balance between solidifying its financial position while at the same time keeping an environment that will encourage Malaysians to save and invest responsibly via unit trusts.
"Effectively this can have a positive spillover effect on Bursa Malaysia and capital market industries," he told Business Times.
Tratax Sdn Bhd executive director Renganathan Kannan pointed out that over 90 per cent of unit trust holders are individuals. Hence, the exemption is expected to significantly benefit the group.
"It will benefit Malaysians directly with no additional cost/tax upon realisation of gains from disposal of unit trusts from both domestic and foreign sources.
"The newly-introduced CGT is applicable for company, limited liability partnership, cooperative and trust body with effective from Jan 1 2024, and the same is not applicable for individuals," he added.