On October 18, 2024, Malaysia released its Budget 2025, and I will focus on the critical points that investors need to understand.

1. Dividend Taxation

One of the most direct impacts on investors is the introduction of a 2% tax on dividend income exceeding RM100,000 annually. While this tax will not apply to dividends from KWSP, PNB, or overseas sources, it still adds a new layer of consideration for high-dividend-yield stockholders, particularly in sectors like telecommunications, utilities, and banking.

Impact on Investors:
Let’s assume that the dividend yield for an investor’s portfolio is 5%. The question then becomes: how much capital would an investor need to generate a dividend income of RM100,000 annually, which is the threshold for the new dividend tax?

As per above, to generate a dividend income of RM100,000 annually with a 5% yield, an investor would need a total capital of RM2,000,000.

• Retail Investors: Most retail investors typically do not have RM2 million invested solely in dividend-yielding stocks. As a result, this 2% dividend tax is unlikely to affect the majority of retail investors, who generally fall below the RM100,000 dividend income threshold.
• High-Net-Worth Investors: For investors earning more than RM100,000 in dividends annually, the tax impact would be starting from RM2,000. While 2% seems scary, but I don’t think it is worth to adjust the portfolio with this size or selling of the counters. Comparing to other country’s taxation policy (e.g.: US impose 30% tax on dividends), I am dare to say 2% is like nothing.

Overall, while this tax adds a consideration for those with substantial dividend incomes, the vast majority of everyday investors will likely remain unaffected.

2. Petrol Subsidy Reforms

The shift towards targeted subsidies, particularly for RON95 fuel, may indirectly affect sectors tied to consumer spending. As the government reduces broad-based subsidies, consumers could feel the pinch, potentially reducing discretionary spending, which might impact sectors like retail, automotive, and transportation.

Impact on Investors:
Investors can keep an eye on companies heavily reliant on fuel or consumer spending, as they may face cost pressures or demand fluctuations. There’s also potential for companies involved in EV and renewable energy to benefit in the long run.

3. Minimum Wage Increase

From February 2025, the minimum wage will rise from RM1,500 to RM1,700, directly affecting labor-intensive industries such as manufacturing, agriculture, and construction. For businesses with high labor costs, this change could lead to tighter profit margins unless offset by increased productivity or price adjustments.

Impact on Investors:
Sectors highly dependent on manual labor may experience margin compression. Investors may want to assess how well-positioned companies are to absorb higher costs or pass them on to consumers.

4. Infrastructure and Technology Investments

Budget 2025 emphasizes infrastructure projects and digital transformation, including initiatives like MyDigital ID. Construction companies and tech firms are likely to benefit from increased government spending on public infrastructure and digital services.

Impact on Investors:
For investors in the construction or tech sectors, these budget allocations could represent growth opportunities. Monitoring government contracts and projects will provide insights into which companies stand to gain.

5. Property Tax Relief

A new property tax relief of up to RM7,000 on home loan interest for properties valued up to RM500,000 offers additional support for homebuyers, particularly in the mid-range market. This could boost demand for affordable housing and positively affect developers and related industries.

Impact on Investors:
Real estate developers and construction firms catering to the mid-tier housing market could see increased demand. Property stocks focused on affordable housing might become more attractive to investors.

6. Carbon Tax and Green Initiatives

A carbon tax will be set up and primarily target the steel/iron industries, incentivizing businesses to adopt environmentally friendly technologies. This aligns with global trends towards sustainability, which could have long-term implications for industries reliant on traditional energy sources.

Impact on Investors:
Companies in the steel and heavy industries may face higher costs if they fail to adopt greener technologies. Conversely, firms that lead in sustainable practices could gain a competitive edge. Investors should watch for opportunities in green tech and sustainable infrastructure.

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Sectors Expected to Benefit

SOLAR / RENEWABLE ENERGY
Companies in the solar and renewable energy sector are likely to see growth due to increased government support and investments in green technologies.

PROPERTY / CONSTRUCTION
The property and construction sectors are set to benefit from tax relief initiatives and a boost in demand for affordable housing, especially in the mid-range market.

ELECTRIC VEHICLE (EV)
The EV sector is anticipated to grow as the government promotes sustainable transportation solutions and investments in electric vehicle infrastructure increase.

CONSUMER
The consumer sector is expected to benefit from the minimum wage increase, which will enhance purchasing power and boost discretionary spending.

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Note: No buy calls will be provided here. If you need further assistance or clarification, please feel free to reach out to your representative.