KUALA LUMPUR: Investors may shift their focus to higher-growth stocks, alternative asset classes, or tax-efficient products due to concerns about a potential expansion of dividend tax by the government, according to CIMB Securities Sdn Bhd.

The research firm noted that while the current 2.0 per cent rate may seem modest, it could be perceived negatively by some investors. 

This additional tax on dividends, combined with corporate income tax, may reduce Malaysia's appeal for wealthy investors compared to other markets.

"There could also be additional administrative costs if Malaysian companies are required to withhold tax on dividend income," it said in a note.

CIMB Securities pointed out that sectors such as banks, real estate investment trusts (REITs), gaming, and telecommunications are known for their high dividend yields in the equity market.

Public Investment Bank Bhd (PublicInvest) said that the tax would be implemented "progressively," but it remains unclear whether this means higher rates for larger dividends or if the 2.0 per cent rate will apply uniformly across all dividend payments.

"Hypothetically, dividends from stocks, mutual funds, or other investments will be subject to this new tax. As such, if this new tax is implemented, it could affect income stocks such as Reits, but currently Reits have withholding tax already (rate for individuals is 10 per cent, which is a final tax, and there is no need to declare this in the personal tax return of the unit holders). At this juncture, it is unclear if Reits will be taxed again at two per cent," it added. 

CIMB Securities also warned that mandatory contributions to the Employees Provident Fund (EPF) could result in unexpectedly high labour costs for industries that rely heavily on foreign workers, posing a risk to corporate earnings.

https://www.nst.com.my/business/corporate/2024/10/1123100/investors-may-shift-focus-higher-growth-stocks-tax-efficient