Foreign-source income tax exemption to reduce earnings risk

 

CGS-CIMB is taking a positive view of the tax exemption on foreign-sourced dividends for corporations as it would reduce the earnings risks for companies with large overseas investments.

In a note, the firm said that it had been concerned about the government’s earlier decision to withdraw the tax exemption on foreign-source income (FSI) for corporations in Budget 2022, as the change will permanently affect future income streams from overseas investments.

“This is positive for Sime Darby, Sime Darby Plantations, PPB Group and KLK, based on initial assessments,” it added.

The Finance Ministry (MoF) has extended the tax exemption on FSI of individuals and dividend income from corporations for five years from Jan 1, 2022 to Dec 31, 2026.

Meanwhile, the ministry had also imposed a higher cap on stamp duty on share transactions in Malaysia until Dec 31, 2026, which would lower transaction costs for the trading of shares.

“We estimate the latest decision will cut total transaction costs for Malaysia to 0.2 percent from 0.32 percent for US$1 million (RM4.2 million) trade value, assuming a brokerage rate of 0.15 percent.

“This is positive for stockbrokers and Bursa Malaysia as the higher cap on stamp duty for the next five years would improve Malaysia’s competitiveness against its peers,” it added.

- Bernama