Bad Governance Causes Capital Flight, Not CGT
MEDIA STATEMENT: BAD GOVERNANCE CAUSES CAPITAL FLIGHT NOT CGT
Yesterday, PM and Finance Minister Najib alleged that our tax policy on Capital Gains Tax (CGT) on shares if implemented will cause capital flight and send the stock market crashing.
I want to thank the PM for paying attention to the Pakatan Rakyat Budget. It is important that he reads our Budget because we have a lot of suggestions to him on how to improve governance, in particular cutting our corruption and implementing greater transparency and accountability.
While it is important that the PM reads the Pakatan Rakyat Budget, my advice is that he reads it carefully and fully. We are against GST. So in our Pakatan Rakyat Budget we proposed CGT in lieu or GST. In other words, the CGT we proposed is not an additional tax, but as an alternative to the GST.
CGT is a tax on profits that people make when they buy and sell shares. If you lose money there is not tax. It is a tax on the few who can afford to buy shares and only when they make profits. In comparison, GST is a tax on everyone not just people who buy shares. As such GST is a regressive tax and CGT is a progressive tax.
“CGT is levied on profits on financial assets such shares and bonds. According to the latest statistics by Muhammad Abdul Khalid in his book “The Colour of Inequality: Ethnicity, Class, Income and Wealth in Malaysia”, the breakdown of financial assets’ ownership in Malaysia in 2014 is as follows: i) more than 54% of Malaysians do not have any financial assets The top 10% richest Malaysians control more than 77% of financial assets. ii) we estimate that going by this statistics, only 15% of Malaysians will be subjected to CGT and they are the richest of Malaysians. It is morally right to tax these 15% rich Malaysians first compared to taxing every Malaysian (most of them poor) through GST”
On the allegation that capital flight will happen when CGT is applied, this is an unfounded and silly view. CGT is recognised globally and is implemented in many countries. The United States, Germany Japan, UK and Australia have CGT, we don’t see capital flights in these countries. Malaysia has no CGT but we have massive capital flights. I would like to remind the PM that the main causes of capital flights are bad governance, corruption, poor democracy and political extremism, all of which, unfortunately in Malaysia we have in abundance.
Introducing CGT in fact will be good for the stock market as it will curb unbridled speculation. The less volatile the stock market, the better the governance and accountability of our Bursa listed companies. We can also tweak the CGT tax structure with CGT discounts to encourage people to own shares and hold it for longer periods of more than one year.
Lastly, I repeat the call of PM to relinquish his post as Finance Minister. He is obviously over worked with so much budget to handle in both the PM Department (RM22 billion) and Finance Ministry (RM40 billion) and in this case regarding CGT he should listen to the Deputy Finance Minister Datuk Ahmad Maslan who on Tuesday 7th October has said in Parliament that he will give good consideration to CGT.
YB Wong Chen, Member of Parliament for Kelana Jaya YB Rafizi Ramli, Member of Parliament for Pandan 13 October 2014