PETALING JAYA: The proposed increase in stamp duty rates on contract notes will make the local stock exchange the most expensive market to trade in Asean, points out Bursa Malaysia.

       “The cost of transactions on Bursa Malaysia was already among the highest in Asean prior to the Budget 2022 announcement.

       “Increasing the stamp duty rate makes us the most expensive market to trade in the region, as the removal of the sales and service tax is much smaller compared to the proposed increase in stamp duties,” the stock exchange told StarBiz in replies to questions posed.

       Under Budget 2022, it was announced that there is a proposed increase in stamp duty rates to 0.15%, from 0.1%, and the removal of the sales tax (SST) from brokerage activities for trading of listed shares.

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

       If passed into law, this will take effect on Jan 1, 2022.

       Bursa Malaysia pointed out that it is cheaper to trade in markets such as Singapore, Philippines, Indonesia and Thailand.

       Last week, StarBiz quoted Pheim Asset Management Sdn Bhd founder and chief strategist Tan Chong Koay as saying that some of Pheim’s clients pointed out 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 trading costs as their share transactions are usually larger than other retail investors.

       Singapore and Thailand remained the most competitive with a tax of 7% of brokerage fees imposed, while the Philippines imposes a tax of 12% on brokerage fees, said Bursa Malaysia.

       In Indonesia, there is a 10% tax on services value plus a final withholding tax of 0.1% of contract values for sell contracts only, but even that is still effectively lower than Malaysia’s new proposed tax structure for stock trading.

       On how the new proposed tax structure would impact trading activity on the local bourse, Bursa Malaysia said: “Overall, the higher stamp duty is expected to affect the trading volume and stock velocity, but the extent of it is hard to be quantified at this juncture.

       “The Cukai Makmur would also affect the valuation of some public listed companies (PLCs) and subsequently the trading on their stocks. There are also many other factors that can affect investment decisions, such as the overall market conditions and fundamentals of the stocks”.

       Budget 2022 has also proposed the Cukai Makmur or prosperity tax entailing a one-off corporate tax of 33% for any company with an income over RM100mil for 2022.

       On Nov 1, the first day of trading after the announcement, a whopping RM34bil was wiped off the local bourse.

       Last week, StarBiz quoted Pheim Asset Management Sdn Bhd founder and chief strategist Tan Chong Koay as saying that some of Pheim’s clients pointed out 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 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 said.

       Bursa Malaysia said: “Although changes to the transaction costs have not commenced, we have seen trading activity decline in the last few weeks as some investors re-evaluate their investment options and prepare themselves before the measures take effect in January 2022”.

       The stock exchange pointed out that there had been a significant 18.5% month-on-month drop in the average daily trading value as at Nov 19.

       According to Bursa Malaysia, it is crucial for the country to have competitive trading rates as it is competing with other regional capital markets.

       “There are various factors that investors consider such as the potential growth and positive outlook are likely to weigh more in the decision-making process, probably more so than higher trading costs.

       “However, it is imperative to maintain competitive rates as we are also competing with other capital markets in the region. Being a country with diverse economic activities and positive growth prospects, there is always something unique that our capital market can offer.

       “For instance, Bursa Malaysia leads in the Islamic capital market space with strong potential to grow further,” Bursa said.

       It pointed out that 77% of Malaysia listed stocks and 40% of its exchange traded funds are syariah-compliant

       “The shift towards ethical, or value-based, investing globally also augurs well for Bursa Malaysia’s prospects.

       “The convergence of sustainability, responsible investing and syariah investing, is expected to deepen our competitive edge and make our offerings highly relevant to investors around the world,” the exchange said.

       It added that several large initial public offerings that have been deferred are expected to make a return going forward.

       “There is also ample room for growth in the derivatives market. Our leadership in the palm oil suite of capital market offerings is a potential strong growth catalyst.

       “Similarly, our ongoing efforts to digitalise our services, liberalise the regulatory framework (where relevant) and widen our products and services have also allowed us to capitalise on new opportunities and stimulate long-term interest in our markets,” the exchange added.