KUALA LUMPUR: The government's proposal to broaden its tax base by introducing a 2.0 per cent tax on dividends exceeding RM100,000 may face resistance from the capital market.

According to an industry expert, stocks with high dividend yields might be sold off before the dividend date to avoid the new tax.

"This 2.0 per cent dividend tax is not welcome by the capital market, but it is applicable to those active big investors.

"Assuming an investor holds 200,000 shares of Maybank (at RM10 it is worth RM2 million, which yields 7.0 per cent tax ), his dividend income would be RM140,000. 

"So he will choose to sell on the date of his 200,000 shares. He can then buy back on ex-date," the expert who requested to comment on condition of anonymity told Business Times.

Small and Medium Enterprises Association of Malaysia (SAMENTA) national president Datuk WIlliam Ng said the tax will disproportionately hurt small and medium enterprises (SMEs) owners. 

"We must remember that the bulk of the dividend will go to the SME owners, not some silent or random investor as in the case of listed companies. 

"Many SME owners do not draw salaries due to the tight cash flow experienced by most SMEs in recent years," he said in a statement. 

He added that taxing them on dividends from income that is already taxed would not only be a form of double taxation but will discourage SMEs from growing their business or turning in higher profits.

Meanwhile, Olive Tree Property Consultants chief executive officer Samuel Tan said the 2.0 per cent tax will increase the country's revenue and also redistribute wealth more equitably.

"Corporates are now required to do their contribution and not just individuals," he said. 

The government plans to gradually expand the tax base by introducing a 2.0 per cent tax on dividend income exceeding RM100,000 for individual shareholders, beginning in the 2025 assessment year.

Prime Minister Datuk Seri Anwar Ibrahim, who also serves as Finance Minister, said in the 2025 Budget that this initiative aims to diversify income tax sources, ensuring that revenue is not solely reliant on contributions from wage earners but also includes earnings from company owners and individuals with substantial shareholdings.

https://www.nst.com.my/business/corporate/2024/10/1122145/tax-dividends-could-make-investors-offload-high-dividend-stocks