This article first appeared in The Edge Malaysia Weekly on November 4, 2024 - November 10, 2024

A new three-letter (bad) word continues to be hotly debated more than a week after the tabling of Budget 2025 — not the demonised goods and services tax (GST) but “T15” — individuals in the top 15% income group being equated with the maha kaya (ultra rich) who will soon have to pay more for salmon sashimi and avocado toasts, buy non-subsidised RON95 petrol as well as pony up more money for public healthcare, boarding school and higher education.

While Budget 2025 did not contain the speculated higher top-tier income tax bracket or inheritance taxes, the announced 2% additional tax on dividend income above RM100,000 annually sparked debate on double taxation as dividends are paid out of income that had already been taxed.

Some experts reckon the move could weigh on investments and take the shine off the local bourse that had just crossed RM2 trillion market capitalisation for the first time in May.

“[For] Malaysians who invest in Singapore shares and earn dividends, [there is] no tax. Dividend stocks would not be [as] attractive on Bursa Malaysia … is this leading to estate duties and other wealth tax?” questioned an observer.

“I don’t know where that came from but I even had ministers call me up before the budget, asking if it was true that [Malaysia will introduce] inheritance tax and I said it wasn’t. There hasn’t been a single conversation in the corridors of the Ministry of Finance about inheritance tax,” Treasury secretary-general Datuk Johan Mahmood Merican tells The Edge in an interview, assuring that there are no further thoughts on wealth taxes beyond the 2% tax on dividend income above RM100,000.

“Maybe [I should] first explain the principle. Part of where the Prime Minister and Minister of Finance [Datuk Seri Anwar Ibrahim] is coming from is he feels that in driving the nation’s development going forward, from a tax point of view, everyone should contribute equitably. Individual income tax is predominantly from wage earners like you and me.

“It was interesting that one of the reactions we got over the weekend was from SMEs (small and medium enterprises) saying, ‘We don’t pay ourselves a salary, we pay all our income as dividends. So now you’re going to tax us’.

“Our response is ‘exactly’. We accept that for salaries, we have a progressive tax system [where] if you earn more, then you pay a higher rate … In a sense, the prime minister feels that it is like signalling that if you earn more in terms of income [from limited liability entities], there is this small additional tax that you pay. In fact, some suggested that it should be higher but he said, ‘No, why don’t we tax the modest amount of 2% and exempt the first RM100,000?’ So, if you get, say, RM140,000 of dividend income, the 2% tax is only on RM40,000 and that’s like RM800 [or 0.57% of RM140,000],” Johan explains.

He assured that the 2% tax on chargeable dividend income from year of assessment 2025 on individuals (not companies) does not apply to distributions from the Employees Provident Fund (EPF), Amanah Saham Nasional Bumiputera (ASNB), Armed Forces Fund Board (LTAT), companies that received pioneer status or reinvestment allowances, co-operatives, and unit trust or closed-end funds.

It also does not apply to dividend income from abroad, profits distributed by tax-exempt shipping companies and others given exemptions on dividend income at shareholder level, including Labuan entities.

“I don’t mean to sound unsympathetic as a civil servant, but [the 2% dividend tax] doesn’t seem to be unduly onerous [for] two categories: the business owner, and someone who has large investments in shares. If you work backwards, [assuming an] average dividend yield of 5% for listed shares, someone who crosses that RM100,000 has around RM2 million [portfolio]. You can contribute a little bit to help build roads and schools and hospitals.

“I think the [prime minister] is just saying he believes that in our society, that it is actually fair for these segments, whether they’re business owners or investors, to also contribute a little bit more [towards nation-building],” Johan elaborates, dispelling the notion of the government going after the rich to help the poor.

As the budget speech or appendices did not define who exactly the government considers maha kaya and T15, there is understandably an uproar on social media, especially among professionals and middle-income earners who are not rich but think they may fall under the Department of Statistics Malaysia’s (DoSM) RM13,925 monthly income threshold for T15 households. Under the 2022 Household Income and Expenditure Survey, household incomes above RM11,820 are deemed as top 20% (T20).

When tabling Budget 2025, the prime minister mentioned that high-income households make up 30% of student enrolments into full boarding schools that the government spends RM15,000 per student to subsidise per year. Anwar also noted that the average tuition fee for a pharmacy undergraduate is RM3,000 — a mere fraction of the total cost of RM30,000 because of subsidies given irrespective of household income.

“A phased reduction in education subsidies for the top 15% income earners could allow the government to reallocate funds for improving the infrastructure of full boarding schools and public institutions of higher learning, benefiting all students,” Anwar said when tabling Budget 2025 on Oct 18.

Asked on who does the government count as T15, Johan pointed to individuals earning over RM100,000 to RM1 million a year as those considered to have higher income in Malaysia, but says the criteria for T15 is still being reviewed and refined by the Ministry of Finance and the Ministry of Economy before being put forth for cabinet approval. He affirmed that the 30% was counted using the DoSM threshold but assured that an individual’s monthly income is not the only yardstick to determine the T15 group for subsidy rationalisation, including for RON95.

According to Johan, part of the thinking behind the usage of the term “T15” when speaking on RON95 subsidy rationalisation is because electricity subsidy rationalisation continues to benefit some 85% of individual users, with billions saved from rolling back subsidies to high-usage individuals and corporations.

“The top 20% to 25% consumed half of electricity subsidies … 85% of households were not affected [when electricity subsidies were rolled back]. The ones using above 600kWh are 15% of domestic users, [thus] the term ‘top 15%’ (T15),” Johan explains. “I hate to use the words maha kaya, but someone who pays an electricity bill of RM740 and above can afford to pay more market rate.”

While only individuals who earn below RM100,000 a year and do not own a luxury car are eligible to apply for diesel subsidies, apart from those in the logistics-, agriculture- and food-related sectors, Johan says these criteria may not necessarily be replicated for RON95 subsidy rationalisation, where policymakers are looking to take into account consumption patterns so that low- and middle-income earners with high RON95 usage are not adversely affected when subsidies are rationalised.

On Oct 28, Economy Minister Rafizi Ramli reportedly said about 10 million people could fit the definition for T15 high-income individuals. That 10 million works out to 29% of Malaysia’s 34.1 million population and more than half of Malaysia’s 16 million workforce.

Nonetheless, Rafizi added that the actual number of T15 individuals will be refined using information from various databases, including the Central Database Hub (Padu), taking into consideration data on their net disposable income and place of residence. The refined definition for T15 will be presented for cabinet approval within a month, Rafizi told reporters.

Given that Anwar had also previously questioned the rationale of those who continue to defend subsidies to those earning some RM100,000 to RM1 million a year (which works out to RM8,333 to RM83,333 a month, assuming zero bonus), critics note that there is not only a wide difference between the monthly incomes within that range but that even someone who earns RM1 million a year (US$0.23 million) may not qualify as someone who is ultra rich.

Indeed, when re-tabling Budget 2023 on Feb 24, 2023 — the first of the three national budgets under the Madani government — Anwar revealed that less than 150,000 taxpayers would be affected by the higher individual income tax rates that affect only 1% of the employed earning above RM20,000 a month. Put another way, only about 150,000 wage earners have salaries of more than RM20,000 a month.

That may be among reasons the Member of Parliament for Sibu, Oscar Ling, proposed in parliament on Oct 29 that the T15 classification use a monthly income threshold of RM30,000.

“I don’t know what T15 is. Nobody knows, right? So, your guess is as good as mine. Many countries are going after the super-rich for more taxes. That is not wrong. But you and I know most people in Malaysia are not maha kaya … I think you need at least US$1 billion to be maha kaya (ultra rich). Today, you need to have a net worth of US$100 million (RM438 million) to be considered an ultra-high-net-worth individual (UHNWI). The old definition of US$30 million is hardly enough, given how much the price of everything has gone up,” another seasoned observer says.

“So T15 cannot be maha kaya, not even T5 or T1. I’ve heard of people earning over RM10,000 a month but are in debt up to their eyeballs and not necessarily because of lifestyle, because that RM10,000 is gross [income], not net income, and certainly not the amount they can spend as they like … Perhaps those ladies with Chanel and Gucci handbags who complained they are paying for their bags using credit card instalments? They’re not maha kaya but can afford to pay a bit more for petrol. That is why it is wrong to equate T15 to maha kaya,” the observer adds, urging that policymakers change their narrative on subsidy rationalisation to one that encourages the contribution of taxes for nation-building rather than one that penalises professionals who are already paying a significant amount of income tax and have worked hard to climb the income ladder (see sidebar).

Indeed, open letters to the prime minister on T15 that have gone viral include one headlined, “We, the T15, are not your enemies!” which decries maha kaya as derogatory and one that disregards existing economic and tax contributions to the Malaysian economy.

Asked on the narrative of maha kaya, Johan says it is certainly not the government’s intention to pit the poor against the rich. What is clear is that there is a need to rationalise blanket subsidies, something which economists generally agree with.

“Maybe [the narrative on the rich is] overdone. I think people need to be fair to the prime minister … for example, I thought it was a very brave thing to even broach the topic of education. When you talk about boarding school, some would say, this is already like the reserve … As the country was developing, there was a risk that if academically strong rural or kampung kids stayed where they were, they might have to help in their family business [instead of studying]. So, bringing them to boarding schools … giving them good resources, good teachers, scheduling study time … was to rebalance the odds for those kids.

“But as the prime minister mentioned in his speech, the T20 now account for 30% of the boarding school enrolment, and worse, whether you are M40 or T20, you only pay like RM2,000 a year; effectively, you’re still being subsidised like RM15,000 the entire year because food and board are all covered. He’s not going to remove it, but he said maybe let’s revisit those fees for those who are able to afford it because this helps contribute towards their fellow students who are less fortunate,” Johan adds.

Asked on the speed of reforms, and whether the Sarawak state elections next year were among the reasons subsidy rationalisation would only happen towards mid-2025, Johan says the mechanism for RON95 subsidy rationalisation is still being worked out for implementation.

“I think we’ve always had a pragmatic government. There’s always a ‘glass is half full or half empty’ … from a glass half full, you’ve at least got a prime minister and minister of finance who’s taking very concrete steps every year to increase the tax base, reduce leakage and quite unpopularly, he’s talking even in the budget speech, telling us civil servants that the government has been kind enough to do the salary review, but now more is expected of you and [he] even talked about rationalising overlapping agencies. I’ve said on some forums, it is very unusual for the minister of finance to start the budget speech, ‘We have a problem, and therefore we have to have more taxes, reduce expenditure and rationalise subsidies’. I think some credit needs to be given.” 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.