By David Chow
KUALA LUMPUR: Bank Negara announced yesterday that the two-tier exit tax on the repatriation
of profits on equity investments has been replaced by a flat 10% levy with immediate
effect, in a move to address concerns on administrative and other issues raised by
foreign fund managers.
The news had an immediate impact on the local stock market. The Kuala Lumpur Stock
Exchange, which had experienced listless trading since early this month, saw the
Composite Index jump 29 points or 4.12% to 739.3 yesterday. Trading volume for the
day more than doubled to 285 million shares, with gainers overwhelming losers by
a ratio of eight.
The Government had in February introduced a two-tier exchange control levy system
in which foreign funds which came on or before Feb 15 were subjected to a 30% tax
if the profits were repatriated within one year and a 10% tax if they were repatriated
after one year.
This saw the maintenance of two external accounts, one normal and one special, to
differentiate the dates of transactions for shares held before and after Feb 15.
This was for tax computation purposes, but created administrative difficulties.
Bank Negara said the flat rate would now allow the two external accounts to be merged
To facilitate the merger of the accounts, foreign funds which were brought in between
Sept 1, 1998 and Feb 14, 1999 would be deemed as funds which have been brought into
the country since Sept 1, 1998 and would not therefore be subject to any levy on
the principal amount.
All profits from funds brought in on or after Feb 15 this year would be subjected
to a levy of 10%, irrespective of when the profits are repatriated.
"The foreign fund managers, particularly unit trust managers, appealed to the
Government that the present system of two-tier levy created some problems for them
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," Bank Negara said.
With the implementation of this change in the levy system, the central bank said
the Government had now addressed all the administrative issues raised by the foreign
fund managers with respect to the levy system.
All foreign fund managers contacted by The Star viewed the latest move favourably.
They said that in addition to the substantial cut in the levy, it was a positive
step which would definitely ease administrative problems for portfolio managers.
They anticipate a gradual return of foreign funds to the local equities market.
Malaysian Investors Association president Dr P.H.S. Lim also welcomed the move.
"The 10% (levy) is reasonable because 30% was too high. Foreign investors also
had to meet other expenses relating to brokerage fees, foreign exchange differences
and other costs. One had to make more than 35% in order to meet the 30% levy on profits,"
he said in a statement issued to the press.
Article extracted from The Star, Malaysia