Capital gains tax and social justice

11 Nov 2023 08:00am
Photo for illustration purposes only - Photo by 123RF
Photo for illustration purposes only - Photo by 123RF

WITH the unveiling of the Finance Bill 2023 in the Parliament, the proposed form of capital gains tax by the government is now evident.

The capital gains tax is imposed on the profit from the sale or disposal of movable or immovable assets.

It is applicable to companies, limited liability partnerships, trust bodies and cooperatives.

Based on this scope, individual accrued capital gains are not taxed.

Capital gains are calculated as the difference between the proceeds received from the sale or disposal of a capital asset and the costs incurred to acquire it.

For capital gains on assets obtained before Jan 1, 2024, the tax rate is 10 per cent.

Sellers can also choose to pay a two per cent tax on the proceeds received.

For capital assets acquired after Jan 1, 2024, the tax rate must be paid if there is a profit from its sale and it is set at 10 per cent.

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There is also a provision to exempt gains from the sale of listed shares from this tax. This is aimed at ensuring no disruption to our stock market operations.

It is a common practice in tax law to provide a general definition of capital assets.

Intellectual property such as patents, trademarks, industrial design and the like fall under capital gains tax besides shares.

Certainly, this matter will be clarified in detail when the tax is enforced later on.

Our entrepreneurs must know what is being taxed and which expenses are allowed to be deducted from sales proceeds.

This is especially important for assets generated internally for the long term.

Before the introduction of this capital gains tax, only profits from real estate sales were taxed.

Other capital gains such as the sale of shares or the disposal of intellectual property, regardless of their substantial value, were not taxed.

This is different from income tax on earnings such as salaries.

If the amount of salary exceeds the tax exemption limit, the recipient will be taxed even if the amount is much smaller compared to previously untaxed capital gains.

Without a capital gains tax, individuals with substantial capital could multiply their wealth without contributing a portion of their capital gains to the country.

However, it would not be surprising if businesses restructured to generate significant capital gains rather than profits through business operations.

Therefore, taxing capital gains at a reasonable rate is a fair aspect of social justice.

However, the government needs to observe the impact of this capital gains tax on the funding of various innovative ventures in the country.

To make our economy highly valued, extensive funding is required to create advanced technology and intellectual property, adding value to our nation.

More creative incentive methods are needed so that talented young Malaysians have access to capital to develop their ideas.

Capital gains tax is not unfamiliar in most other countries; it has been practiced for a long time.

In this era, where a large economic value is generated through intellectual prowess, capital gains tax complements the tax system.

Therefore, the introduction of this capital gains tax will not affect the country's competitive position.

Datuk Nik Mohd Hasyudden Yusoff is the former chief executive officer of Tabung Haji.

The views expressed in this article are the author's own and do not necessarily reflect those of Sinar Daily.