The proposed 2% dividend tax imposed on dividend income of over RM100,000 earned by individual shareholders starting from the 2025 year of assessment is getting mixed reactions from tax consultants and an economist.
According to YYC Group Chief Executive Officer Datin Yap Shin Siang, the government has taken a middle ground in announcing this new tax ruling.
“The imposition of this dividend tax will likely impact high-earning shareholders as they are now required to pay more taxes.
“This is believed to have a lesser impact if the inheritance tax was to be introduced, which brings a wider base and higher tax impact,” Yap said in a statement.
The proposed dividend was announced by Prime Minister Datuk Seri Anwar Ibrahim during the tabling of Budget 2025 on Friday with the aim that tax revenue collected does not depend exclusively on contributions from salaried individuals but also encompasses contributions from company owners and individuals with significant equity holdings.
Commenting on this, Deloitte Malaysia country tax leader Sim Kwang Gek said that currently, Malaysia does not impose any taxes on dividends received from Malaysian tax-resident companies because these companies’ profits have already been subjected to corporate income taxes.
“Hence, this newly announced approach is aimed at taxing the higher-income groups that receive significant dividend income.
“However, more clarification is needed on the exemption granted to dividends received from companies enjoying pioneer status and reinvestment allowance incentive because typically dividends are received from the investment holding company with subsidiaries claiming such tax incentives. Would the exemption be available in such a scenario?” Sim said.
During the budget tabling, Anwar said tax exemption is given to dividend income from government savings, including the Employees’ Provident Fund, unit trusts under Permodalan Nasional Bhd and foreign dividend income.
Addressing Disparity
Meanwhile, KPMG Malaysia’s head of corporate tax Tan Lai Kok said the imposition of the dividend tax can help to address the disparity of redistributing the tax collected through various government assistance programmes.
“Currently, earnings distributed to shareholders are free from taxation, hence, by taxing individual shareholders who derive large amounts of dividend income, the government can ensure a portion of such wealth can be redistributed to the rakyat who are much more in need,” Tan said in a released KPGM’s insight on dividend tax on individual shareholders.
He added that the impact of this new tax needs to be considered not only from the perspective of individuals but also how it will impact Malaysian companies.
“For this, there are at least three key areas of impact including the impact on the investment attractiveness of Malaysian companies, the additional administrative burden to the companies and the change in investment behaviour and structuring strategies.
“While a targeted dividend tax for wealthy individuals aims to address income inequality, it is essential to consider the broader implication of investment behaviour and economic health.
“Policymakers should recognise these potential consequences for both individuals and the Malaysian companies and strive for tax policies that foster investment while promoting fairness in the tax system,” Tan said, adding that balancing these objectives is critical in ensuring a robust and dynamic economy that benefits all stakeholders.
Double Taxation
On the other hand, economist Geoffrey Williams said the 2% dividend tax might be a way to plug the tax evasion loophole among the small and medium enterprises (SMEs) owners since these owners do not get salaries and only depend on dividends.
“If dividend comes from profits and they pay tax on profits, they will be paying tax. And if they are SME owners, the company belongs to them so company income is their income too.
“Hence, you are getting a double taxation scenario where tax on profit and tax on their income instead of a tax evasion,” Williams said, adding that it would be better to exempt them from tax to ensure they have more cashflow and money for investment and higher wages.
“This is because in the end, the 2% dividend tax will cover some people but the exemptions make it very limited in scope,” he stressed.
