Malaysia’s plan to tax dividend income has drawn both praise and criticism.
Anwar Ibrahim, Malaysia’s prime minister and finance minister, announced in the 2025 federal budget unveiled on October 18 that the government will impose a 2% tax on dividend income over 100,000 ringgit (US$22,440) from next year.
There will be some exemptions, including dividend income from foreign sources. The tax will also not apply to profit distributions made by the Employees Provident Fund, the Armed Forces Fund, and unit trusts.
Earnings distributed to shareholders are currently free from taxation.
“Hence, by taxing individual shareholders who derive large amounts of dividend income, the government can ensure a portion of such wealth be redistributed to Malaysians who are much more in need,” Tan Lai Kok, head of corporate tax at accounting and consulting firm KPMG Malaysia, says in a statement.
Geoffrey Williams, an economist and founder of Williams Business Consultancy, says the dividend tax will hurt owners of small and medium enterprises.
“SME owners take the fruits of their enterprise through dividend, not income. Often they forego their own income to meet cash flow and wages for employees. They catch up in the end using dividends which vary from year to year. They pay tax on the profit, so why tax them again on the dividend?” he asks on his social media account.
The tax will likely not significantly weaken investor sentiment in the local stock market, according to a fund manager at a Malaysian asset management firm.
“It could create short-term weaknesses, but in the long term, the country’s economy is on a strong foundation for sustained growth,” he says, speaking on condition of anonymity.
