The Association of Malaysian Brokerage Companies (ASCM) said it has proposed to keep the stamp duty on contractual notes for stock trading on Bursa Malaysia at 0.1%, while slightly increasing the current cap of 200 RM.
This follows a higher rate of 0.15% as well as the removal of the RM200 stamp duty cap on contract notes on January 1, 2022, as proposed in the 2022 budget.
The latter should have a moderating effect on the local stock market, where stock market activity is on a downward trend.
Contacted by The Edge, ASCM said it had met with Securities Commission Malaysia and Bursa Malaysia to voice industry concerns on the matter.
“The hike in the stamp duty could have an impact on sentiment in Bursa Malaysia in the short term and hamper its global competitiveness. Local and foreign institutions as well as retail investors will be hit hard by the proposed increase in the stamp duty rate from 0.1% to 0.15% and the complete removal of the stamp duty cap. This will dampen overall liquidity and market dynamism and widen bid-ask spreads, ”he said in an email response to The Edge.
The association proposed to keep the stamp duty rate at 0.1%, with a cap slightly above the current cap of RM200, instead of a complete removal.
“It is more acceptable and sustainable so that our market remains attractive and competitive,” he notes, adding that the proposal could avoid an extremely disruptive situation and put the local stock market on an equal footing in terms of costs of transaction compared to its regional peers.
He did not specify what limit he proposed instead of completely removing the RM200 cap. Sources say it could range from RM500 to RM1,000.
The decision to increase the stamp duty rate is part of several initiatives to impose fair tax treatment on the public, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said during the 2022 budget tabling.
An industry observer from a brokerage firm who declined to be named said the part of most concern is the removal of the RM200 cap.
“The fees could skyrocket if you remove the cap. The last time when you made a million RM transaction, you only had to pay 200 RM at the rate of 0.1%. But without the cap and the rate of 0.15%, you will pay 1,500 RM. It’s a serious hike, ”he says.
“We see this as a big drag, especially for high frequency traders and institutional investors. Totally uncapped is not acceptable. We are very concerned about this. If implemented in January 2022, our back office should also be reconfigured.
“My feeling is that they (the authorities) are probably not going to implement this. It is not possible to expect the industry to implement the stamp duty hike without a cap, ”he adds.
Another industry player believes that ASCM should send an official letter to the Ministry of Finance asking for the reinstatement of the stamp duty cap.
Drawing on the situation in Hong Kong, HLIB Research notes that the territory saw its monthly average daily trade value drop 44% from February to November after a stamp duty hike earlier this year.
“Large traders (domestic and foreign institutions) would be hit hardest, affecting more than 60% of the local stock exchange demographics,” the research house said in a Dec. 9 note.
Although the 6% sales and services tax (SST) on brokerage was removed, she stressed that investors would still bear a significant increase in transaction costs.
“For illustration, assuming a deal size of RM 1 million and brokerage of 0.2%, the total cost of transactions would drop from RM 2,620 to RM 3,800, a jump of 45%. The higher stamp duty, which is further amplified by the removal of the cap, would only be marginally offset by the removal of brokerage SST – a symbolic compensation at best, in our view, ”says HLIB Research.