CGT will stifle DDI, FDI - Ahmad Maslan

Malaysia will not implement the Capital Gains Tax (CGT) as it will stifle domestic direct investment (DDI) and foreign direct investment (FDI), Deputy Finance Minister Datuk Ahmad Maslan said.

He said the CGT would also affect full distribution of other capital gains as foreign and local investors would not derive profits from their business commensurate with their efforts.

"They will not be able to use their profits to expand their business and investments in the country.

"In our view, the implementation of the CGT will hinder economic growth due to declining DDI and FDI and will not attract foreign investment, apart from raising the cost of investment," he told a briefing on the 2015 Budget here today.

Ahmad said Malaysia currently imposed the CGT only on capital gains from the sale of real estate known as the Real Property Gains Tax (RPGT) to avoid speculation and manipulation to earn abnormal profits.

He was commenting on a proposal by the Opposition that the GST should be replaced with the CGT, a tax on capital gains; the profit realised on the sale of a non-inventory asset purchased at a cost amount that was lower than the amount realised.

He said the opposition had exploited public sentiment over the implementation the GST by not mentioning that with the introduction of the GST in April next year, the Sales and Services Tax (SST) would be abolished.

"What was raised by opposition leader Datuk Seri Anwar Ibrahim during debate in Parliament was an attempt to confuse the people by portraying that the GST will burden the people. On the contrary, the SST is higher as it is a tax-on-tax regime.

"Under the SST, consumers are paying between 15 and 18 per cent on goods and services. With the implementation of the GST, they will only be charged six per cent. The government is implementing the GST to reduce the burden of the people," Ahmad said.

The GST will be levied on RON97 petrol as it is not subsidised and the price depends on the market condition, he said, adding that the consumption of RON97 at present was three per cent.

Speaking to reporters at Parliament lobby later, Ahmad said the CGT would also give a negative impact on the economic transformation agenda and burden investors and traders who had to pay a variety of taxes, including corporate tax, individual income tax and the GST.

"If the government were to implement the CGT, investors will shy away from Malaysia or withdraw their investments as their cost of doing business will go up because they will have to pay various taxes.

"The opposition is only good at government bashing, rather than understanding the rationale behind having a better tax system," he said.

On the inheritance tax (IT), he said it would not be reintroduced as it would cause an imbalance and burden high-income tax payers who would have to pay five taxes, including corporate tax, income tax and the CGT.

"The government had implemented IT before, but the tax collection was not much, ironically, increasing the tax gap to between 20 and 25 per cent," he said.