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Malaysia stocks decrease 2% as government announces 'windfall' tax on companies

Malaysia stocks decrease 2% as government announces windfall tax

November 2, 2021: -On Monday, Malaysia stocks decreased as the government announced a one-off “windfall” tax on companies to increase revenue for the coming year.

The benchmark FTSE Bursa Malaysia KLCI Index decreased around 2.2% from the worst-performing stock markets across Asia-Pacific.

On Friday, Malaysian Finance Minister Tengku Zafrul Aziz presented the government’s budget for 2022, including the largest-ever spending plan worth over 332 billion ringgit to jump-start an economy weighed down by the Covid-19 pandemic.

Zafrul announced several measures to raise government revenue, which include the surge in tax rate on corporate income of more than 100 million ringgit to 33% from 24% in 2022.

“The windfall tax is slated to be a one-off initiative for the high expenditure requirement of the government given the pandemic situation. Still, it would come a bit of a bite for some companies,” said Wellian Wiranto, an economist at Singapore’s OCBC bank.

Altogether, the increase in government spending will help Malaysia’s economic recovery continue into 2022, said Wiranto.

According to the International Monetary Fund, the Southeast Asian economy is expected to grow by 3.5% this year and 6% next year. Malaysia’s economy contracted 5.6% in 2020. 

This year, the country had to reimpose lockdown measures to fight a sharp rise in Covid cases, dampening economic activity. The number of daily reported cases has been declining while the vaccination rate increased, prompting the government to lift most social-distancing measures.

Malaysia appears on track to reopen fully by early 2022, said Denise Cheok, an economist at Moody’s Analytics.

“The expansionary budget for next year supports our brightening outlook for the Malaysian economy. The resumption of domestic and international travel, and rising commodity prices, will help lift the economy out of its pandemic-induced funk,” said Cheok.

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