KUALA LUMPUR: Pakatan Rakyat has refuted the prime minister’s allegation that the implementation of the capital gains tax (CGT) would cause capital flight leading to the crash of stock markets.
Kelana Jaya MP Wong Chen said such an argument was unfounded, adding that the main causes of capital flight were bad governance, corruption, poor implementation of democracy and political extremism.
“Countries such as the United States, Germany, Japan, UK and Australia have CGT but we don’t see capital flight in these countries,” he said at the parliament lobby yesterday.
“The PM’s argument is somewhat flawed and simplistic. What causes the market to crash is market speculation.”
Pandan MP Rafizi Ramli, who was also present, said the implementation of the CGT was “morally right” as opposed to the goods and services tax (GST) which would impact all Malaysians.
“With CGT, only those who make gains when trading stocks and bonds will be taxed,” he said.
“In our estimation, only 15% of the richest Malaysians would be subjected to CGT.”
Prime Minister Datuk Seri Najib Razak said on Sunday that the CGT would be bad for Malaysia’s economy as it is not business-friendly and would result in capital flight.
“They (PR) say they want to widen the tax base through the capital gains tax. You have your shares, and when you sell your shares, you are taxed. What happens? The Bursa stock will fall; capital flight,” Najib said in his speech at MCA’s 61st annual general assembly on Sunday.
“And this will affect businesses, your income. It is not the right prescription. The goods and services tax is much better than the capital gains tax.”
However, Pakatan, in its alternative budget, had insisted that the GST was not needed and instead mooted the CGT and the inheritance tax, which taxes the transfer of inheritance from wealthy individuals who died.
Rafizi said yesterday that the GST would be borne by all Malaysians, including the poorest in the country.
“CGT is a tax on the few who can afford to buy shares and only when they make profits. In comparison, GST is a tax on everyone, not just people who buy shares. As such, GST is a regressive tax and CGT is a progressive one,” he said. “We believe that CGT has to be implemented first before we are ready for GST.”
Wong also noted that the introduction of CGT would help curb speculation of stock markets, which was contrary to Najib’s argument of the tax.
“When you implement CGT, you don’t simply speculate anymore. You try to take a longer-term view in your investments. We can adjust the CGT tax structure to encourage people to own shares for longer periods of more than a year. — The Malaysian Insider
This article first appeared in The Edge Financial Daily, on October 14, 2014.