Feeling the heat

WEEKS after the proposed increase in the stamp duty rate on contract notes has been announced, industry players continue to express their concerns.

These new taxes on stamp duty for contract notes, foreign sources of income and prosperity tax seem to have knocked the wind out of the sails of the local market, says StashAway country manager for Malaysia Wong Wai Ken.

The worst thing is the removal of the RM200 cap as this discourages active traders, adds Areca Capital CEO and fund manager Danny Wong.

To be sure, sentiment has already been affected badly although the measures are supposed to come into effect only in January next year.

On Nov 1, for instance, the first day of trading after these were announced, close to a whopping RM34bil was wiped off the local bourse.

Under Budget 2022, it was announced that there will be an increase in stamp duty rate on contract notes to 0.15%, from 0.1%, making it immediately more expensive to buy and sell shares.

Additionally, there will also be a removal of the RM200 cap on contract notes for the trading of shares.

Currently, according to information on the Bursa Malaysia website, the stamp duty is RM1 for every RM,1000 of the transaction value of securities, payable by both buyer and seller.

There is a maximum cap of RM200 that is required to be paid regardless of value of transactions.

Pheim Asset Management Sdn Bhd founder/executive chairman/chief strategist Tan Chong Koay tells StarBizWeek that some of Pheim’s clients have said that the 50% increase in stamp duty on contract notes (from 0.1% to 0.15%) and the removal of the RM200 cap for each contract note would definitely impact the trading costs as their share transactions are usually larger than other retail investors.

“They (would) have preferred (Malaysia) to emulate the recent hike in Hong Kong which is only 30%, that is from 0.1% to 0.13%,” Tan says.

The market may continue to react towards the above proposals, and the impact could also be amplified by the introduction of the Cukai Makmur or prosperity tax in 2022, which will see, a higher tax rate of 33% (versus 24% currently) on corporate companies which go above a certain profit threshold, he adds.

It is understood that in Singapore, there is no stamp duty on share trading.

“Based on this alone, we are at a disadvantage compared with financial hubs like Singapore or Hong Kong,” says Areca’s Danny.

“It is not just that we are behind them in measures to attract global investors, we are also regressive in implementing some measures which are not welcomed by the market, this tax and stamp duty increase, for instance.

“It is not good news for active trading platforms like equity exchange traded funds/digital platforms which actively rebalance their portfolios because this means higher costs for them,” Danny adds.

StashAway’s Wai Ken says for retail traders and proprietary day traders who trade in relatively high volumes, the additional stamp duty will reduce their already thin profit margins.

“Institutional investors who perform large block trades will be taxed more than previously because of the removal of the cap.”

He says the company, a wealth management platform, sees 2022 as being another lacklustre year for the broader market.

“Even industries that exhibit good macro conditions like the energy and palm oil sectors have seen their indices fall by 14% and 10% this year,” he points out.

“Foreign investors will also want to see more political stability before looking to investing into Malaysian equities.

“One sector which should continue to do well is the tech sector, with the shortage of semiconductors worldwide increasing the unit prices of electronic components,” he adds.

Wai Ken also points out that government revenue from other direct taxes, which include the stamp duty is estimated to increase by 4% to RM8.6bil following the proposed increases.

This increase is relatively small, he notes.

“It would however introduce some friction to capital market participants, particularly those that trade equities frequently.

“The main issue here is the removal of the RM200 cap which increases the stamp duty required to be paid by those transacting above RM133,000.”

Danny is more upbeat on the local bourse moving forward saying that it is all about being selective.

He prefers selected companies within sectors such as financial and consumer for this purpose.

He says Areca engages a barbell strategy, a move which focuses on investing in high-risk and no-risk assets at the same time.

This is done to expose the company’s portfolio to growth sectors, he adds.

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