WHEN Prime Minister Datuk Seri Anwar Ibrahim announced on Feb 24 that fewer than 150,000 taxpayers would be affected by higher individual tax rates in the retabled Budget 2023, as opposed to 2.4 million who will benefit from the lowering of tax rates in brackets that apply to middle-income working professionals, the good news for the many mid-level professionals was bittersweet on the macro- and socio-economic front.
For one, the numbers show a narrow tax base: Only about 2.55 million, or 17%, of the country’s 15 million workforce are taxpayers (18%, if one were to exclude about one million employers and unpaid family workers; and 26%, if one were to use the number of wage recipients of 9.7 million in 2021).
There are those who could not help but to juxtapose the 150,000 top taxpayers with the 130,000 hardcore poor that the government is determined to lift out of poverty through holistic measures that enhance their income generation potential.
As it is, the fact that fewer than 150,000 people had chargeable annual income of above RM230,000 meant that one needs to earn only about RM20,000 a month (about US$4,500 or S$6,000) to be among the top 1% in terms of salaries among Malaysia’s 15 million workforce and top 6% of some 2.55 million individual income tax payers.
While there is no breakdown of tax contributions from the 2.4 million or the 150,000 in the top 1% of the workforce who will have to pay more taxes, we know that 46.8% income share is with the top 20% of households in 2019, while the bottom 20% only has 5.9%. Department of Statistics Malaysia (DoSM) data also shows 30.7% of income share going to the top 10% of households, similar to the 31% going to the bottom 50% of households in 2019.
Far from ultra-rich
A gross monthly salary of RM20,000 would seem high — even when the monthly take-home pay is about RM14,300 — well above wages of half of the country’s citizens taking home less than RM2,250 a month in 2021 (down from RM2,442 a month in pre-pandemic 2019).
Yet, what looks like a tidy sum is not that much just across the Causeway, where half of the full-time resident employees earned at least S$4,500 a month in 2022 (S$5,070, including employer Central Provident Fund contribution), official data shows. For the lower-end wage earners, there are already skills-enhancing programmes that would allow multi-skilled cleaners and refuse collectors to earn more than S$3,000 basic monthly salary by 2028 from at least S$1,800 to S$2,100, or between RM6,000 to RM7,000, currently, government releases show.
With the ringgit at RM3.3230 to the Singapore dollar at the time of writing, even the salaries today may look attractive to many who are willing to put up with hardship for a higher pay.
Even before the Singapore dollar strengthened past 3.30 to the ringgit, there was already anecdotal evidence of better-skilled and better-educated youths choosing to work in services industries across the Causeway for a better pay cheque than what they would receive as an office worker in Malaysia.
Wages are still generally low even among skilled workers in Malaysia, with half of them earning less than RM4,471 a month in 2021 (median income is RM1,601 for low-skilled and RM1,781 for semi-skilled). Half of some two million degree holders in Malaysia earned less than RM5,221 a month in 2021, DoSM data shows.
Only 36% of 9.7 million wage earners were deemed skilled workers in 2021 versus 56% who were semi-skilled, according to DoSM data. Only 20% have a degree. At least 5.5 million people, or 58%, have only Sijil Pelajaran Malaysia (SPM), or O-Level, qualifications, with half earning below RM1,787 a month.
The generally low wages among individuals translates into low household incomes. The bottom 20% of households earned less than RM3,166 a month in 2019 while the bottom half of the M40 households had between RM4,850 and RM7,093. Meanwhile, the bottom half of the T20 households had between RM10,960 and RM15,021 a month — some two to three times the country’s median household income of RM5,873 in 2019, simple workings show.
If nothing else, the government will need fiscal ammunition to help lift more of the lower- and middle-income earners up the skills ladder to build a new engine of growth for the country’s development.
That the government decided against lifting the top marginal individual income tax rate higher than the current 30% for those earning above RM2 million and 28% for those earning between RM1 million and RM2 million demonstrates that policymakers know there is a limit to how much higher rates can go, if the country wants to keep the high-quality talent pool working, investing, living and consuming goods and services in the country.
After all, at the current 30% marginal tax rate, someone with a chargeable income of RM2 million a year, or RM166,667 a month, would already be paying around RM525,000 in taxes — more than three months’ gross salary. Someone earning S$2 million across the Causeway would only be paying around S$413,000 — about S$100,000 less dollar-for-dollar — or roughly 2½ months’ salary, with the top marginal income tax rate capped at 22% currently.
The lower marginal income tax rates are also possible, with a broad consumption tax regime in place since April 1, 1994, in the city state, which can also choose to tax the rich by adjusting taxes slapped on higher-end luxury cars and residences.
Malaysia, whose policymakers inherited a very tough fiscal situation, has to recognise what works and whether that same formula would not only allow greater flexibility to invest in the country’s people and strategic capacity but also help bring down the country’s RM1.5 trillion debt and liabilities burden. If they do well, national coffers would naturally benefit from the country having a lot more than just 150,000 private sector wage earners and taxpayers earning more than RM20,000 a month.
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