This article first appeared in The Edge Malaysia Weekly on November 9, 2020 - November 15, 2020

FOR the middle-income (M40) group, one piece of good news from Budget 2021 could be the reduction in tax rate by one percentage point for the chargeable income band of RM50,001 to RM70,000.

The tax rate will be reduced from 14% to 13% for the year of assessment 2021.

Although the tax saved is only RM200, it does help when households are grappling with the economic fallout from Covid-19. According to the Finance Ministry, the proposal will benefit 1.4 million taxpayers in the country.

In Malaysia, the income tax structure for resident individuals is based on progressive rates ranging from 0% to 30% on chargeable income. Meanwhile, non-resident individuals are subject to income tax at a flat rate of 30%.

Koong Lin Loong, head of the Associated Chinese Chambers of Commerce and Industry of Malaysia’s (ACCCIM) taxation committee, tells The Edge that it is timely to reduce the tax rate to assist those in the M40 group.

“It is indirect cash to pump into the economy,” he says.

“I suppose this is to balance what the government has done for the B40 group, which received a lot of cash handouts. So, for the M40 group, it is easier to do it via tax cuts. One income bracket was chosen, which is somewhere in the middle,” PwC Malaysia tax leader Jagdev Singh opines.

Koong says the last revision for the income tax rate was for the year of assessment 2018, which saw a reduction from 16% to 14% for the RM50,001 to RM70,000 income bracket as well.

During the same year, the tax rate for the chargeable income of RM20,001 to RM35,000 was reduced to 8% from 10%, while a lower tax rate of 3% was imposed for RM35,001 to RM50,000, from 5% previously.

For the year of assessment 2020, a new tax band for those earning RM2 million was introduced, with a tax rate of 30%.

Amarjeet Singh, Ernst & Young Tax Consultants Sdn Bhd (EY) Asean and Malaysia tax leader, is of the view that the impact from the tax cuts should also be looked at together with other reliefs announced.

“The pandemic has impacted the B40 group, but at the same time, the M40 group is also affected by pay cuts. It is a needed move to take care of the M40 group.”

He adds that the government should consider having a broader band for the lower- and middle-income brackets, so that the effective tax rates for the B40 and M40 groups can be reduced.

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