Trump’s push for tax reform has no major impact on Malaysia

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KUALA LUMPUR: US President Donald Trump’s push for a major tax revamp is neither directly correlated nor has a major impact on the Malaysian financial market, said Malaysian Association of Technical Analysts (MATA) President Nik Ihsan Raja Abdullah.

He said instead, the proposed tax revamp would likely benefit US small private enterprises which accounted for 95 per cent of US businesses.

“Hence, it will boost domestic spending and increase disposable income for middle income earners in the US.

“However, Trump’s tax proposal faces strong retaliation from Democrats, particularly from state offering significant tax breaks,” he said when commenting on a major tax overhaul in three decades announced by Trump on Wednesday, which would likely see tax cut for most Americans.

Even though there is no direct correlation to the local market here, Nik Ihsan said indirectly, a stronger recovery in the US market posed a significant shift in investor sentiment, thus increasing their appetite to take up riskier assets, namely stocks versus other asset classes.

“Regardless, the Malaysian stock market skewed towards the upcoming general election with investors still riding the current election, given FBMKLCI year-to-date gain of 7.46 per cent so far,” he said.

Meanwhile, MIDF Amanah Investment Bank in its Economic Brief noted that currently, US corporate tax and individual income tax are at 35 per cent and 39.6 per cent, respectively.

It described Trump’s proposed tax revamp as part of his expansionary policies, promising huge tax cut ahead of his presidential reelection campaign.

MIDF said the proposed new tax rate for corporate is 20 per cent while that of individual is slightly lower than the current rate of 35 per cent.

Strategy wise, MIDF said this is part of Trump’s efforts to bring back jobs to America by attracting companies, especially US-originated ones from abroad rather than low-labour-cost economies.

The cut in taxes would spur both corporate and consumer spending, hence boosting economic growth in the US.

“We opine the tax cut will have a significant impact on the economy, given that approximately 86.8 per cent of the US GDP (gross domestic product) is supported by private consumption at 69.6 per cent and private investment at 17.2 per cent.” — Bernama