In earlier article the mechanism of the single-tier corporate tax system as announced in the Budget 2008 on Sept 7 has been discussed.

Reported in the Press, as a result of the effect of the new system on dividends this will pose some of the following impact on:-

Corporate:

• Chemical paint maker Acoustech Bhd has had to change its dividend declaration.
• Another main board-listed counter, PLUS Expressways Bhd, had its valuations revised upwards by analysts.Citi Investment Research said in a Sept 19 report that PLUS future earnings “could be boosted 22% on the new dividend tax system.”
• MIMB Investment Bank head of equity research Pong Teng Siew expects an across-the-board adjustment of valuations for many counters on Bursa Malaysia, in particular high dividend-paying stocks.
• Analyst valuations would be either revised upwards or downwards, depending on the counter. Analysts who had used a dividend discount basis to value companies would also have to readjust their valuations accordingly.
• Companies that have had a high ‘tax shield’ of accumulated past tax losses from either restructuring or otherwise would now be the same (as those without tax shields) in dividend-paying terms,
• Another effect of the new corporate tax policy is that companies that have large accumulated tax-exempt profits will now be able to declare dividends without incurring costs. Previously, companies that made non-taxable profits would have to pay tax on dividends declared on such profits.

Personal Income Tax

• Those taxed at less than the corporate tax rate will no longer be able to receive refunds (from dividend tax credits). For example, pensioners (with shares in dividend-paying companies) will have less disposable income during their retirement years. There would be a disincentive to borrow to finance equity investments
• Those who are taxed at a marginal rate higher than the corporate tax rate will no longer have to pay additional tax.

Double taxation does arise under the current imputation system of taxation in the case of non-residents who are unable to claim credit in their home countries in respect of tax deducted or deemed deducted from dividends.

Incidentally, for those unfamiliar, this one-tier corporate tax system has already been introduced in Singapore from Jan 1, 2003, with a five-year transition until Dec 31, 2007
As for Malaysia’s single-tier corporate tax system, it provides a six-year transition period up to Dec 31, 2013. Hence, with this new system, this will be adopted by existing companies at different times, for example when their Section 108 credit is exhausted within or at the end of the six years or when they elect to move into the new system although a Section 108 credit still remains.[The Section 108 tax credit account is a tax credit reserve from which companies can pay dividends under the two-tier tax system]

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