Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on December 13, 2021 - December 19, 2021

THE Association of Stockbroking Companies Malaysia (ASCM) says it has proposed to maintain the stamp duty on contract notes for the trading of shares on Bursa Malaysia at 0.1%, while raising slightly the current cap of RM200.

This follows a higher rate of 0.15% as well as the removal of the RM200 stamp duty cap on the contract notes come Jan 1, 2022, as proposed under Budget 2022.

The latter is expected to have a dampening effect on the local bourse, where stock trading activity has been on a declining trend.

When contacted by The Edge, the ASCM says it has met with the Securities Commission Malaysia and Bursa Malaysia to express the industry’s concerns on this matter.

“The stamp duty tax hike could impact sentiment on Bursa Malaysia in the near term and dampen its global competitiveness. Local and foreign institutions as well as retail investors will be hard hit resulting from the proposed increase in the rate of stamp duty from 0.1% to 0.15% and the complete removal of the stamp duty cap. This will dampen the overall liquidity and vibrancy of the market and widen the bid-ask spreads,” it says in an email reply to The Edge.

The association has proposed to retain the stamp duty rate at 0.1%, with a slightly higher cap above the current cap of RM200, instead of a complete abolishment.

“This is more acceptable and sustainable for our market to remain attractive and competitive,” it notes, adding the proposal could avoid an extremely disruptive situation and put the local bourse on a more equal footing in terms of transaction cost compared with its regional peers.

It did not say what limit it has proposed instead of a complete removal of the RM200 cap. Sources say it could be RM500 to RM1,000.

The move to increase the stamp duty rate is among several initiatives to impose a fair tax treatment on the public, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said during the tabling of Budget 2022.

An industry observer with a stockbroking firm who declined to be named says the most concerning part is the removal of the RM200 cap.

“The fees could skyrocket if you remove the cap. Last time, when you performed a RM1 million transaction, you would only have to pay RM200 at the 0.1% rate. But with no cap and the 0.15% rate, you will be paying RM1,500. It is a serious hike,” he says.

“We view this as a big dampener, especially on high-frequency traders and institutional investors. Totally uncapped is not acceptable. We are very concerned about this. If it is implemented in January 2022, our back office would also need to be reconfigured.

“My feeling is that they (the authorities) are probably not going to implement that. It is not possible to expect the industry to implement the stamp duty hike with no cap,” he adds.

Another industry player opines that ASCM should send an official letter to the Ministry of Finance to request the reinstatement of the stamp duty cap.

Taking a cue from the situation in Hong Kong, HLIB Research notes that the territory saw its monthly average daily trading value fall 44% from February to November after a stamp duty hike early this year.

“Larger traders (domestic institutions and foreigners) would be hit harder, impacting more than 60% of the local bourse’s demographics,” the research house said in a Dec 9 note.

Although the 6% Sales and Services Tax (SST) on brokerage will be removed, it highlighted that investors would still bear a significant rise in trading cost.

“For illustration, assuming a trade size of RM1 million and brokerage of 0.2%, total trading cost would increase from RM2,620 to RM3,800, or a 45% jump. The higher stamp duty, which is further amplified by the abolishment of the cap, would only be marginally offset by the brokerage SST removal — a token compensation at best, we feel,” says HLIB Research.

 

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