Malaysia takes another step toward easing capital controls

Malaysia takes another step toward easing capital controls

KUALA LUMPUR (Reuters): The Malaysian government on Thursday took another step toward easing capital controls by excluding foreign investments in property from a new system of levies on repatriated principal and profit.

The central bank, Bank Negara Malaysia, said in a statement that foreign investments in property would be immediately excluded from a new system of levies on repatriated principal and profit.

It said that for funds which came in before Feb. 15, 1999, no levy would be imposed on repatriated principal invested in properties.

Repatriated profits from property investments for funds which are brought into the country on or after Feb. 15 would not be taxed, Bank Negara said.

"Consequently, the levy is only imposed on investments in shares, bonds and other financial instruments," it said.

Economists and analysts cheered the move, which came two weeks after the government had scrapped a rule barring foreign investors from repatriating the principal of investments for at least 12 months.

But they said the move would probably not provide an immediate boost to the glutted real estate market.

"Overall, anything that lessens fund flow controls, we view positively," said Chong Yoon Chou, investment manager at Aberdeen Asset Management in Singapore.

"It still leaves the question whether foreigners apart from Singaporeans are going to be interested in the Malaysian market."

On Feb. 4, the government relaxed capital controls in place since September by replacing the 12-month restriction on the outflow of foreign portfolio investments with the system of levies.

Repatriated principal of portfolio investments other than in property made before Feb. 15 are subject to a levy ranging from zero to 30 percent depending on how long the principal is kept in the country.

For investments made on or after Feb. 15, there is no levy on repatriated principal, but repatriated profits draw a tax of 30 percent if taken out of the country within 12 months, and 10 percent if after 12 months.

"I don't think it will have a significant impact on the overall market as a big chunk of the foreign investments are in the equities side," said Anthony Dass, economist at KAF Group.

"Foreign investors are not going to change their investment plans because of this. So the impact, if any, on the property sector as well as the stock market and the economy will be insignificant," he said.

The Kuala Lumpur Stock Exchange's Property Index was also not impressed by the news.

The index, which was down 2.35 percent at 08:00 GMT when the announcement was made, ended 2.21 percent lower.