Consultant: M’sia’s income tax system progressive

KUALA LUMPUR: Malaysia’s personal income tax system is progressive with the aim of continuously assisting low-income earners, as well as, advancing along with people’s behavioural changes in expenditure, says PwC International Assignment Services Sdn Bhd executive director Hilda Liow.

Income tax encompasses twofolds, one is the reliefs given to taxpayers and the other is the tax imposed, she said.

“In the last 10 years, among the 11 tax bands (chargeable income) we have now, there has been a reduction of between one and five per cent in every single band, which has resulted in fewer people paying tax now than before,” she said.

Malaysia has 11 tax bands to cater for chargeable incomes of RM0-RM5,000, which carries a zero rate, to incomes exceeding RM1,000,000 which attracts an income tax of 28 per cent. For instance, 10 years ago the monthly household income that triggered the payment of taxes was RM3,500, but from the year of assessment 2017, the taxable household income was raised to RM4,500.

“With the two per cent reduction (in personal income tax rate) for three tax bands (in 2018

In the last 10 years, among the 11 tax bands (chargeable income) we have now, there has been a reduction of between one and five per cent in every single band, which has resulted in fewer people paying tax now than before. Hilda Liow, PwC International Assignment Services Sdn Bhd executive director

budget), the monthly trigger has now increased to RM4,800 (for 2018 filing). So, between 2017 and 2018 assessment, about 261,000 additional tax-payers will not fall into the taxable category,” she told an interview with Bernama, RTM, and TV3 on April 5.

In Budget 2018, tax rates were cut by two percentage points on taxable incomes of between RM20,000 and RM70,000, which raised disposable income of individuals by RM300 to RM1,000, In the last 10 years, she said the reduction in taxes for people has been 100 per cent for some and at least 10 per cent for those in the income bracket of RM600,000.

As for tax reliefs, Hilda said the government has also been very progressive both in terms of the items and the value.

The total value of reliefs had increased 22 per cent from RM79,000 to RM97,000 since the year 2009.

“Some of the new things that have been introduced is relevant to the current state. It is actually, in a way, shaping the behavioural changes of how people spend the money. So, we see a lot of enhancement in terms of knowledge enhancement, household technology, tablets and things like that,” she added.

For 2017, the government also announced tax reliefs for gym memberships for self, spouse or child, besides reliefs for books, tablets and sports equipment.

The government also encourages people to save for their retirement, healthcare and education and by way of giving tax reliefs for savings in education fund, life insurance and private retirement schemes.

Asked if tax reliefs were common, Hilda said it was not a common practice in other countries.

“I think Singapore gives, but for only half of the items that we do. Most countries give relief for just two items namely personal and mortgage interest,” Hilda revealed. Going forward, the Hilda said there was still plenty of room for the government to improve the personal income tax system.

“The rates are nowhere near low paying countries as yet. So, it can be reduced further,” said the tax consultant, adding that this should be possible now especially after Malaysia introduced the Goods and Services Tax (GST).

The GST is a fairer tax regime compared with direct income taxes. It’s a consumption tax, if you don’t spend, you don’t pay.

In a way, it needs to be balanced out as an individual cannot be paying both income tax, as well as, consumption, she said.

Hence the concept behind direct taxes needed to be reduced in stages.

Besides, she felt the process could be simplified further.

Hilda said more things can be administrated through monthly income, “family and personal relief, for example, can be captured there itself. The employers can have something like a tax card.”

Such measures would not only further reduce the need for more people to file their taxes but also help the government reduce its administrative cost, she added. — Bernama