Capital controls eased further


By Kasmiah Mustapha

KUALA LUMPUR, Tues. - Bank Negara today announced further relaxation of capital controls by introducing a single 10 per cent levy on all profits from foreign portfolio investments, replacing the two-tier system introduced in February.

The announcement was greeted with cheer in the Kuala Lumpur Stock Exchange where share prices ended 4.1 per cent higher with the benchmark Composite Index of 100 quality stocks closing 29.27 points higher at 739.30.

Strong buying support of blue chip counters such as Malayan Banking Bhd, Tenaga Nasional Bhd and Telekom Malaysia Bhd lent considerable weight to the upsurge.

In a statement, Bank Negara governor Tan Sri Ali Abul Hassan Sulaiman said: "All profits from funds brought in on or after Feb 15 this year are subjected to a levy of 10 per cent, irrespective of when the profits are repatriated."

Under the two-tier system, funds that came in on or after Feb 15, 1999 were subjected to a 30 per cent levy on profit made and repatriated within one year.

Profits repatriated after one year attracted a levy of 10 per cent.

Ali Abul Hassan said with the changes, the Government had addressed all the administrative issues raised by foreign fund managers on the levy system.

Foreign fund managers, particularly unit trust managers, had appealed to the Government to reconsider the two-tier levy system saying it created problems in computing prices and determining the amount of levy applicable to their investment.

This is particularly so for fund managers who make continuous investment in Malaysia and repatriate their profits regularly.

Ali Abul Hassan said the change in the levy system would also facilitate the merging of two external accounts - normal external account and special external account - into one.

To facilitate the accounts' merger, foreign funds that were brought in between Sept 1, 1998 and Feb 14, 1999 would be deemed as funds that have been brought into the country since Sept 1, 1998.

Therefore, the funds would not be subjected to any levy on the principal amount.

Meanwhile, Malaysian Investors' Association president Dr P.H.S. Lim said with the removal of the 30 per cent levy on capital gains, more foreign investors, especially the pension fund managers could show interest in the Malaysian capital market.

In a statement, Lim said the association welcomed the Government's move to lower the levy to 10 per cent from 30 per cent.

In fact in its memorandum to First Finance Minister Tun Daim Zainuddin and in the pre-Budget dialogue with Second Finance Minister Datuk Mustapa Mohamed, Lim said he had strongly advocated the lowering of the levy.

"Ten per cent is reasonable as 30 per cent is too high. Apart from the 30 per cent levy, foreign investors had to meet other expenses relating to brokerage fees, foreign exchange differences and other cost.

"One had to make more than 35 per cent in order to meet the 30 per cent levy on profits," he added.

Pesaka Jardine Fleming Sdn Bhd head of research, Stephen Weller, when asked to comment on the
revision, said that it would certainly be an encouragement for foreign investment flowing back into the country.

"The 10 per cent levy imposed now is acceptable and comparable to other global markets."

Article extracted from New Straits Times, Malaysia



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