Brokerage Fees for Share Trading Exempted From SST

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Fees for brokerage services for trading of shares listed on the stock exchange are exempted from the sales and service tax (SST) hike recently announced in the 2024 Budget.

Bursa Malaysia Securities Bhd told Business Times that the exemption on SST for brokerage firms under the sector is still status quo, and remains in place for trading of shares listed on the stock exchange.

Under 2022 Budget, brokering services for trading of listed stocks were given a service tax exemption to ensure the Malaysian stock market activity remains competitive.

Therefore effective January 1, 2022, brokerage service providers who provide services in relation to the trading of shares listed on Bursa Malaysia have not been charged the aplicable six per cent service tax.

This was thought to have changed however, when Prime Minister Datuk Seri Anwar Ibrahim, during the tabling of the 2024 Budget on Oct 13, 2023, said the government plans to increase SST rate to 8.0 per cent instead of 6.0 per cent and expand it to cover brokerage firms.

Anwar said the tax is not applicable on services such as food and beverages, and telecommunications, however the government announced that the scope of taxable services would be expanded to include logistic, brokerage, underwriting and karaoke services in 2024, as part of efforts to increase the government’s coffers.

Bursa Malaysia Securities recently issued a notification to brokerage firms that the SST will remain exempted on brokerage fees for share trading.

It is understood that the move to continue to exempt service tax on brokerage fees for share trading, is part of the government’s efforts to make share trading more accessible and affordable for retail investors, as well as encourage improved market velocity.

RHB Investment Bank in its note on the SST charge after the 2024 Budget announcement had said that retail investors would be the most impacted by the tax, although it would not be a meaningful impact.

Based on its estimates, a RM50,000 trade with a 42 basis points brokerage fee would incur an additional three basis points to the overall cost as a result of the service tax (+6 per cent to transaction cost).

In June this year, Anwar announced the introduction of fractional shares as one of the capital market initiatives to encourage stock market participation by retail investors, particularly the young.

On September 7, 2023, the Securities Commission issued guidelines for stockbroking companies to offer fractional share trading services for shares listed on Bursa Malaysia.

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