About a week ago, at an open forum, Prime Minister Dr Mahathir Mohamad and Finance Minister Lim Guan Eng were answering questions after Mahathir delivered his speech about our pathetic financial position and how to revise our tax laws on profit gains from property investments and inheritance profit for doing nothing. He also talked about increasing death duties so that our children will not have too much money to spoil themselves, and said he might consider profit gains tax on share investments of listed companies.
Allow me to explain the fundamentals of doing business and how to do more business, because almost none of the politicians who are making rules and regulations that affect the citizens have done business before.
Small businesses like selling kacang putih or vegetables, or hawker businesses, do not need much capital.
Bigger businesses like manufacturing computer chips or large-scale planting of oil palm or property development need more capital. One easy way is to borrow money from the bank, but all banks require solid collateral which businessmen normally do not have.
I sold my one and only house to start doing property development and construction contracting businesses. How could I borrow money from the bank when I did not have any unmovable assets? Unfortunately, banks do not accept construction equipment like bulldozers or excavators as collateral.
The only way for me was to ask my family members and friends for financial help. This was the beginning of IGB, Mudajaya, Gamuda and IJM Corporation.
After Ipoh Garden Sdn Bhd made increasingly more profit and could comply with all the conditions stipulated by the Securities Commission, the company was listed in the Kuala Lumpur stock exchange by issuing more shares to sell to public investors. In fact, IGB issued shares to buy up Mudajaya and Jurutama to form IJM Corporation Bhd. Currently, IJM Corp’s market capital is about RM12 billion.
Public-listed companies always require more capital to expand their operation by issuing more shares to sell to public investors.
I think the Pakatan Harapan government should not change the existing law on share investment profit for the following reasons:
- Ever since the founding of our Securities Commission and the stock exchange, profit from share investments has not been taxable.
- All countries in Southeast Asia including Thailand, Taiwan, Singapore, India, Hong Kong, Indonesia and Malaysia do not tax on profit from share investments.
- The main reason is that all these countries are not fully developed nations and whenever their companies need additional capital, they can issue more shares to sell to public investors. Profit gains tax will discourage investors.
- Under existing tax laws, companies have to pay tax on their profit, and share appreciation is not taxable.
- Tax on share appreciation will definitely discourage foreign and local investors from wanting to buy public-listed shares. As a result, companies will not be able to raise capital so easily to expand their businesses.
- If Malaysia implements capital gains tax on share investments, foreign fund managers will not buy shares via KLSE; they will buy shares through the Singapore stock exchange which is not taxable. As a result, brokers in Malaysia will lose out on all share investment business to the Singapore stock exchange.
- I strongly believe that the KLSE will crash if this unfriendly tax law is implemented.
- Remember, the government collects most taxes from public-listed companies to pay the civil servants and politicians.
- The KLCI has been dropping continuously in the last few weeks from 1820 to close at 1735, especially today when more than 80% of the listed shares dropped in price. I think investors are fearful of the government’s intention to tax profit from share investments which is partially responsible for the continuous slump in the stock market.
I trust Mahathir will discuss this article with his Cabinet and I hope the government will not tax investors of public-listed shares.
Koon Yew Yin is a retired chartered civil engineer and one of the founders of IJM Corporation Bhd and Gamuda Bhd.
The views expressed here are those of the author and do not necessarily reflect those of FMT.