This article first appeared in The Edge Malaysia Weekly on November 1, 2021 - November 7, 2021

INVESTORS’ fear of a surprise corporate taxation came true when Finance Minister Datuk Seri Tengku Zafrul Abdul Aziz announced a one-off 33% cukai makmur (prosperity tax) on companies with chargeable income over RM100 million for the year of assessment 2022.

The cukai makmur is a one-off tax measure proposed by the federal government in Budget 2022, whereby chargeable income  above the RM100 million mark will be taxed at a rate of 33%, instead of the blanket 24% rate previously. Tax is levied on a company’s chargeable income and not its net profit.

Among over 900 public-listed companies on Bursa Malaysia, 145 of them earned over RM100 million in their financial year 2019 (FY2019), while there were only 125 such companies in FY2020, based on Bloomberg data.

Only 113 companies managed the same level of pre-tax earnings across the last two financial years, according to Bloomberg data.

Banks and big plantation companies are seen as the obvious targets.

The FBM KLCI constituents such as Malayan Banking Bhd, Public Bank Bhd, Tenaga Nasional Bhd, Top Glove Corp Bhd and Petronas Chemicals Group Bhd were among the 113 companies that managed over RM100 million consistently across the two financial years (see table).

Glove makers such as Careplus Group Bhd and Rubberex Corp (M) Bhd as well as semiconductor automated testing equipment (ATE) and packaging companies, such as ViTrox Corp Bhd and Unisem (M) Bhd also saw their pre-tax earnings rise in FY20 compared with FY2019.

It is unclear if the cukai makmur will apply to all companies as the current year of assessment differentiates tax rates depending on the paid-up capital of the company according to the Inland Revenue Board.

For the year of assessment 2020, companies with a paid-up capital of less than RM2.5 million are charged a 17% tax rate for their first RM600,000, while the extra income will be subjected to 24% tax rate. Companies with paid-up capital of above RM2.5 million, however, will be subject to a tax rate of 24% regardless of their income generated.

Budget 2022 has proposed to increase the stamp duty rate on contract notes for trading of listed shares by 0.1% to 0.15% and remove the cap of RM200 on such contract notes.

The move is among several initiatives to impose fair tax treatment on the public, Finance Minister Tengku Datuk Seri Zafrul Aziz said at the Dewan Rakyat during the Budget 2022 speech.

Concurrently, service tax is exempted from brokerage activities for trading of listed shares from Jan 1, 2022.

Notably, the RM200 cap was introduced in 2003 to stimulate the local equity market.

“This is a quick and easy way to increase tax collection from such activities. It is a good alternative to the capital gains tax regime, which can be complex to administer and requires careful study before implementation.

“The removal of the RM200 cap would impact share transaction value above about RM134,000,” says Deloitte Malaysia tax leader Sim Kwang Gek.

However, the stock market may react negatively to the higher stamp duty rate although it is seen as better and simpler than a capital gains tax, which is cumbersome to implement.

Prior to the Budget 2022 announcement, calls were made to introduce capital gains tax as a source of revenue for the federal government.

Separately, under Budget 2022, the government has also proposed to exempt property gains tax on disposals for Malaysians and permanent residents from the sixth year and above.

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