KUALA LUMPUR (Feb 24): The government is reducing individual income tax by two percentage points for those in the taxable income bracket of RM35,000-RM100,000 starting this year, in a bid to relieve the burden of rising cost of living faced by the middle 40% household income group (M40).
“The B40 (bottom 40%) is often given various forms of aid, while the M40 has been exhibiting their patience despite being squeezed by the rising cost of living,” he told the Dewan Rakyat in tabling the revised Budget 2023 on Friday (Feb 24).
Anwar said the tax reduction is expected to benefit about 2.4 million taxpayers with additional disposable income of RM1,300.
Meanwhile, the government will increase the tax rate for high-income earners by 0.5 to two percentage points for the income tax bracket of RM100,000 to RM1 million, which Anwar claimed will affect less than 150,000 taxpayers.
Anwar said the adjustments will reduce the government’s tax collection by RM900 million to benefit specifically the M40.
This compares to the previous government’s proposal of cutting the tax rate by two percentage points for the income bracket of RM50,000-RM100,000, and a 0.5-percentage-point increase for the RM250,000-RM400,000 income bracket.
Govt proposes luxury goods tax, excise duties on vapes
Meanwhile, the government has proposed to impose a tax on luxury goods starting this year, based on the types of luxury items like watches and fashion products.
Instead of a broad-based tax system like the goods and services tax (GST), Anwar said the government will take a more progressive approach to broaden its tax base by targeting those who can afford to pay.
“In the current situation, many people are still suffering, with food inflation of over 5% and wage rates remaining low. This is not the appropriate time to implement it (the GST),” he said.
In the revised budget, the government also proposed to impose excise duties on liquid nicotine that is used in e-cigarettes and vapes.
Anwar, who is also the finance minister, said that although vapes that contain nicotine are not regulated, they have been widely marketed, and the industry is estimated to be worth some RM2 billion.
“The government supports the initiative of the generational endgame, and agrees that half of the excise duties collected will be allocated back to the Ministry of Health as an effort to increase our healthcare services,” he said.
Meanwhile, Anwar said the government will study the implementation of a low-rate capital gains tax on disposal of shareholdings in privately-owned companies starting in 2024, n accordance with international best practices,
The government will hold an engagement session with relevant stakeholders to examine the details of this proposal.
Govt to collect RM11,000 per person from T20 group
The latest revision of taxing the T20 group 2% higher will give a progressive incremental tax revenue of close to RM11,000 per person to the federal government’s coffers, according to PwC Malaysia tax director Michelle Chuo.
Although the government could lose RM900 million from its income tax reduction of 2% to the M40 group, it is still set to benefit from taxing the T20 group higher, Chuo said, adding the decision is a lot more targeted towards making the higher income earners contribute more to the economy.
“Although there is 2% tax reduction (M40) and a 2% tax increase (T20), on net the reduction in income has been cushioned because the magnitude of the 2% increase is a lot higher than the reduction. It can go up to close to RM11,000,” she told The Edge.
Adeline Wong and Yvonne Beh, Partners in the Tax, Trade and Wealth Management Practice of Wong & Partners in a statement on Friday said personal income tax rates adjustments are also consistent with the aim of reducing the burden on the working middle class.
“This is offset against the increase in tax rate for the higher income earners,” said Adeline and Yvonne.
In a separate statement, KPMG said that the luxury tax implementation is “a clear approach to tax high net-worth individuals".
“This practice is in line with the other countries: for example, Singapore imposed this tax on luxury cars, while China imposed 60% import tariff on luxury goods,” KPMG said.
Balancing act needed in capital gains tax roll-out
PwC Malaysia Tax Leader Jagdev Singh said the proposals to introduce the Luxury Goods Tax effective this year, together with the commitment to study the introduction of Capital Gains Tax on the disposal of non-listed shares from 2024 onwards and the revision in personal tax rate, do not come as a surprise.
“Nevertheless, the study on the potential introduction of Capital Gains Tax should be done on a measured basis to ensure that the benefits (namely the amount of tax revenue generated) far outweighs the costs (impact to the investment ecosystem and the administrative burden to tax authorities and taxpayers),” he said in a statement.
Ernst & Young Tax Consultants Sdn Bhd Malaysia tax leader Farah Rosley said the projected benefits from such measure, as well as the upcoming capital gain tax, would need to be balanced with the impact on Malaysian’s attractiveness as an investment destination.
“Whilst this may increase future revenue collections, the projected benefits would need to be balanced with the impact on Malaysian’s attractiveness as an investment destination,” Farah said.
“A capital gains tax of this nature may also discourage group restructuring exercises, which are typically undertaken to streamline group structures and to bring about efficiencies. We hope the consultation will be robust and the feedback will be considered prior to any implementation decisions being made,” she added.