MANY mid-level working professionals heaved a sigh of relief when they found out that only those earning above RM20,000 a month (above RM230,000 in annual chargeable income) are likely to be paying higher individual income taxes, even though the retabled Budget 2023 had raised tax rates by 0.5 to two percentage points (ppt) for the income bands between RM100,000 (roughly RM9,000 a month) and RM1 million.
That is because individuals whose annual chargeable income (taxable income less relief) is above RM100,000 and just below RM230,000 would be among some 2.4 million individual income tax payers whom the government expects to still see a net benefit from the 2ppt tax cuts each in three income bands between RM35,000 and RM100,000 that reduce the tax brackets to 6%, 11% and 19% from 8%, 13% and 21%.
These lower tax brackets reduce payable taxes and raise disposable income by between RM300 and RM1,300 — a move in favour of the middle-income earners that the government expects to cost around RM1.2 billion in (gross) forgone tax revenue.
Part of the RM1.2 billion would be offset by some RM300 million in additional tax receipts expected from the middle bands with rate hikes, giving rise to a net reduction of about RM900 million in the government’s tax receipts, Treasury secretary-general Datuk Johan Mahmood Merican told participants at the Malaysian Economic Association post-budget roundtable in Kuala Lumpur on Feb 27.
Deputy Finance Minister Steven Sim had also separately clarified to the public via the media that the individual tax bill only increases for those earning closer to RM20,000, and not around RM9,000, a month. Confusion over the matter had arisen among the uninitiated as the Budget 2023 speech stated that “the government will raise tax rates for those with higher income between 0.5ppt and 2ppt, for income range RM100,000 to RM1 million”.
A closer look at the table appended with the retabled Budget 2023 shows that even among the 150,000 expected to pay higher taxes, the increase is only RM200 for those with a chargeable income of between RM230,000 and RM250,000 per annum (RM19,167-RM20,833 per month) — with the annual tax bill inching higher to RM46,900 from RM46,700, at most.
Individuals with an annual chargeable income of above RM250,000 would see a hit of RM10,950 at the most — with the annual tax bill rising to RM248,400 from RM237,450 at the RM1 million mark — given that tax rates were left unchanged at 28% for income bands above RM1 million and 30% for income bands above RM2 million.
Similarly, those with a RM2 million chargeable income will see payable tax rise to RM528,400 from RM517,450 — also RM10,950 more.
Tax rates were also left unchanged at between 1% and 3% for those with below RM35,000 in chargeable income (wages of up to roughly RM4,000 a month, considering RM9,000 personal relief and RM4,000 relief for statutory Employees Provident Fund contribution).
When compared with the old Budget 2023 that was tabled last October, before the 15th general election, the Budget 2023 that was retabled on Feb 24 had proposed a lower rate of 6% versus 8% for the chargeable income bands of between RM35,000 and RM50,000 but had, for instance, also increased the tax rates for income of between RM100,001 and RM150,000 by a whole percentage point to 25% from 24%, and income between RM600,001 and RM1 million by 2ppt to 28% from 26%.
The old Budget 2023, on the other hand, did not change the 24% rate for chargeable income bands of between RM100,000 and RM150,000.
Interestingly, proposals on income tax changes were expected to cost the government RM1.66 billion under the old Budget 2023 but only RM995 million under the retabled Budget 2023, according to the estimates on the impact of budget measures appended in the respective federal government fiscal reports. It is not immediately certain whether any income assumption had been pencilled in on the proposed special voluntary disclosure programme, which reportedly brought in around RM8 billion in additional revenue when implemented between November 2018 and September 2019.
According to the Updates on Economic & Fiscal Outlook and Revenue Estimates report 2023, individual income tax is pencilled in at RM35.29 billion in the new Budget 2023, being 12.1% of federal government revenue and 21.5% of estimated total direct taxes. This is up from RM33.78 billion (11.5% of total government revenue and 22% of total direct taxes) in 2022 and RM27.05 billion during pandemic-hit 2021 but below their all-time high of RM38.95 billion in 2020 and RM38.68 billion in 2019.
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