Tax exemption for over 260,000 Malaysians

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KUALA LUMPUR - Over 260,000 people will be exempted from paying income tax following a two percentage point reduction in the individual tax rate for those earning between RM20,000 and RM70,000 (S$6,765 and S$23,675).

Prime Minister Datuk Seri Najib Tun Razak announced the cut in Budget 2018 in a move to help middle-income families raise their disposal incomes.

This will largely benefit the M40 group of household incomes of between RM3,000 and RM8,300.

The amount would translate to savings of between RM300 and RM1,000 for those in the lowest bracket of chargeable income group.

This is the estimated 260,000 individuals who are expected to be exempted from paying income tax.

Economists believe that the extra money available would help to sustain the standard of living and raise the disposal income of the middle class.

The extra cash also means an increase in private consumption that would help the economy.

“The cut in income tax will raise the disposable income for the M40 group.

“So, that is among the expected goodies for the middle-income group,” said Sunway University Business School economics Prof Dr Yeah Kim Leng.

He said it would help address the high cost of living in the urban areas.

The two percentage point tax cut may not seem to amount to much but it is still extra cash for many households faced with rising living costs, especially in the cities.

Noriani Hafiz, a clerk in Klang, said she was grateful to the Government for the tax cut and estimates that she would get an extra RM300 based on her income of RM35,000.

Although she would not feel a huge difference, she said it still matters a lot to her as she could save the extra cash for her young daughter or buy something for the household.

She said the RM1,000 tax relief for childcare fees (for year assessment of 2017) also helped her cope with the family expenses.

Fan Kam Leong, 27, who is starting a job in the private sector, is among those to benefit from the tax cut.

“As I am starting my career and with a low salary, the few hundred ringgit means a lot.

“The Government has done the right thing by not burdening those in the lower income group.

“Living in the city requires you to have a car but with the MRT fully operational and affordable, I don’t intend to buy a car yet. So the extra cash I get from the tax reduction could be saved,” said Fan, who lives in Kajang and works in Kuala Lumpur.

The bachelor said he hopes the Government can maintain the tax rate for the long term.

Albert Lim, 31, a widower, is happy he will be paying lower taxes on his RM42,000 an­nual salary.

With two young daughters to take care of, Lim said he could now spend more on them, maybe even take holiday trips.

“After paying for my house rent and car instalment, there is nothing much left in the bank.

“But with this tax reduction, there will be a few hundred ringgit extra to spend or save. And with two kids to worry about, it helps a lot,” the executive said.

The reduction of the two percentage points will put an additional disposable income of RM1.5bil that can be spent by the people.

The Prime Minister said when tabling the budget in October last year that the Government will continue to increase household dispo­sable income, as well as narrow the income gap in the country.

Analysts said it was a good move because if the Government can afford it, they should put the money back into the pocket of the rakyat.

“These people will have some savings because of the adjustment, so it matters to them,” said economist Lee Heng Guie of the Socio-Economic Research Centre.

AmBank Group chief economist Anthony Dass said the extra money would help the M40 group to sustain their standard of living.

“This kind of deduction will free up some money for them although there will be a small percentage of them who will put the extra money into savings.

“But most of them will spend because the marginal propensity to consume is quite high; 75 sen for one ringgit earned will be on spending.

“I think we will see a pick-up in private consumption, and it will help the economy,” he was quoted saying in a newspaper.

With the tax cut, those earning between RM20,001 and RM35,000 annually will see their tax rate drop from 5% to 3%, while those making between RM35,001 and RM50,000 will go from 10% to 8%.

Those taking home between RM50,001 and RM70,000 will pay 14% of their taxable income instead of the 16% now. Tax rates remain unchanged for those above these brackets.