PETALING JAYA: The one-off prosperity tax announced last week is feared to be a deterrent to investors as it shows the government’s willingness to punish companies that have been able to perform strongly during the Covid-19 pandemic.
Under Cukai Makmur, as it is called, corporate earnings above RM100 million will be taxed at a rate of 33% instead of the previous 24%.
The proposal was made during the tabling of Budget 2022 last Friday, and the reaction has been swift since Bursa Malaysia opened for trading on Monday.
The total market capitalisation of listed companies dropped by RM33.8 billion, with deputy finance minister Yamani Hafez Musa admitting on Tuesday that it could have been due to concerns over the tax.
Shaun Edward Cheah, executive director of the Malaysian International Chamber of Commerce, said the tax penalises companies that “by virtue of astute business operations” were able to register strong profits.
“Even during the pandemic period, there are companies that had to ramp up their operations to cater to new demands and made more profits as a result of this work,” he told FMT.
“For investors, of course, it’s scary to see the implementation of such ad hoc policies.”
He said these fears could be allayed if the funds collected were earmarked specifically for targeted economic recovery projects rather than used to boost government revenue.
“If it’s somehow changed to contribute to good causes, like food banks, supplying medical gear or equipment or back-to-work schemes, then it becomes more palatable to investors.”
Economist Carmelo Ferlito, CEO of the Center for Market Education, agreed that the government needed to be transparent about how such funds would be used.
He said it must also must be firm in communicating that this was only a temporary measure if it wanted to win back the favour of foreign investors.
“There’s an old joke that there is nothing more permanent than a temporary government programme,” he said. “So the government needs to show this isn’t the case here.”
Ferlito said new taxes would eat into earnings and end up lowering the profits of large institutional investors like PNB and EPF and thus lower their returns to the people.
Benedict Weerasena of Bait Al-Amanah agreed that the government must commit to abolishing the tax after 2022 lest the country’s long-term competitiveness in Southeast Asia be compromised.
He acknowledged that the tax would ultimately align with the government’s shared development agenda, but said it would still need to consider long-term measures to ensure fiscal stability instead of resorting to one-off taxes.
He said the prosperity tax, unlike broader reforms or consumption taxes like GST, “does not support long-term revenue generation for the nation”.