Malaysia tax rate 2nd lowest in SEA

Recently announced tax rate affects three bands

PETALING JAYA: Malaysia maintained its top rate of personal income tax at 26% in 2010, which was the second lowest rate compared with five other countries in South-East Asia, according to KPMG’s annual Individual Income Tax and Social Security Rate survey.

“The rate was reduced from 28% to 27% in 2009 and further reduced to 26% in 2010,” said the audit firm in a recent statement.

“Although it was recently announced that the tax rates affecting three chargeable income bands ranging from RM2,501 to RM50,000 will be reduced by 1%, this will have minimal impact on an eligible individual taxpayer as the tax reduction only amounts to RM475,” KPMG said.

Singapore maintained the lowest rate in the region (see table), followed by Indonesia, Philippines, Vietnam and Thailand.

In the same statement, KPMG international executive services head Datin Pauline Tam said there could be a possibility that the 26% top tax rate in Malaysia would be reduced when the Government introduced the goods and services tax.

“It will be good if the Government could give a firm commitment to its reduction as this will be very welcome to businesses and entrepreneurs. Being ‘open for business’ is not just about the corporate tax regime.

“Personal tax is a major issue for entrepreneurs, high net worth individuals and senior executives, many of whom can and do exercise considerable discretion over where they choose to locate.”

Tam however added that “headline top rates of tax don’t tell the whole story.”

“For example, here in Malaysia, while the top rate of personal income tax is26%, on earnings ofUS$100,000, a single individual’s effective tax rate is 21%. When comparing rates in different countries, it’s important to consider the threshold at which the rate kicks in and the effect of social security taxes which may be levied.

“Indeed, the survey shows that when considering the combined effective social security and income tax rate levied on a salary of US$100,000 and US$300,000 respectively in a range of six countries in South-East Asia, Malaysia is lower than countries such as Indonesia, Thailand, Vietnam and the Philippines.”

The survey of personal tax and social security rates with historical data from 2003-2012, covers 114 countries and concentrates on the highest level of personal tax payable to the central government.