KUALA LUMPUR, Oct 18 — Income from dividends that crosses RM100,000 will be taxed at a 2 per cent rate starting next year, Prime Minister Datuk Seri Anwar Ibrahim announced today as he unveiled the largest federal spending plan to date.

Anwar, who is also finance minister, said the tax will be applied "progressively” but whether or not this means the tax rate would change the higher the dividends are or would be taxed at a flat rate of 2 per cent is unclear at the moment.

How does it work?

Suppose you invested RM4 million in shares and the company you invested in announced a 3 per cent dividend for the financial year 2025. Your dividend earnings would total RM120,000, which means that income is taxable since it’s above RM100,000.

What’s the tax rate?

That RM120,000 will be taxed at a 2 per cent rate, according to what was said during the Budget presentation in Parliament. Anwar said the tax would apply "progressively” but did not elaborate during the tabling.

Progressive taxation could mean that if your dividend for the year is RM120,000 (at 2 per cent), only the RM20,000 would be taxable.

The other scenario is that the 2 per cent tax rate would apply on the total amount of dividend, so a RM120,000 would amount to RM2,400 in tax that the individual would have to pay.

It’s also unclear if the dividend tax would be charged in tandem with your income tax or separately.

What is getting taxed?

Just dividends. The dividend yield of a stock is the dividend amount paid per share and is expressed as a percentage of the company’s share price. There are companies that pay dividends by allocating shares to the shareholders instead of cash.

Whether or not this would be taxed, or how, is unclear.

Who will likely get taxed?

Hypothetically, anyone receiving dividends from stocks, mutual funds, or other investments will be subject to dividend taxes. This includes individuals and companies.

Any exemptions?

Yes. Exceptions will be made for dividends from savings in Employees Provident Fund, Amanah Saham and dividends from overseas.

It’s currently unclear if dividends above RM100,000 earned from those institutions would be exempted or taxed.