Report: Tax exemption puts additional RM1.5 billion in hands of consumers

Bloomberg pic

KUALA LUMPUR: More than 260,000 people, exempted from paying income tax this year, will be able to save between RM300 and RM1,000 a month.

The Star reported economists as saying the extra money available would help to sustain the standard of living and raise the disposal income of the middle class.

Prime Minister Najib Razak announced, in unveiling Budget 2018 last year, the government ’s decision to reduce the individual tax rate for those earning between RM20,000 and RM70,000 by two percentage points.

According to The Star, the reduction of two percentage points will make available an additional disposable income of RM1.5 billion to the people. This, it added, would largely benefit those with household incomes of between RM3,000 and RM8,300 a month.

“The cut in income tax will raise the disposable income for the M40 group. So, that is among the expected goodies for the middle-income group,” The Star quoted Sunway University Business School economics, Yeah Kim Leng as saying.

The Star talked to several people on the effects of the two percentage point tax cut.

Noriani Hafiz, a clerk in Klang, said she was grateful to the government for the tax cut. She estimated she would get an extra RM300.

The report quoted her as saying that although it would not make a huge difference, it mattered as the extra cash could be used on her young daughter or to buy something for the household.

She said the RM1,000 tax relief for childcare fees (for year assessment of 2017) also helped her cope with the family expenses.

The report quoted Fan Kam Leong, 27, as saying: “As I am starting my career and with a low salary, the few hundred ringgit means a lot. The government has done the right thing by not burdening those in the lower income group.

“Living in the city requires you to have a car but with the MRT fully operational and affordable, I don’t intend to buy a car yet. So the extra cash I get from the tax reduction can be saved.”

Fan hopes the government will maintain the tax rate for the long term.

The Star said Albert Lim, 31, a widower with two young daughters, was happy he would be paying lower taxes on his RM42,000 an­nual salary.

“After paying for my house rent and car instalment, there is nothing much left in the bank. But with this tax reduction, there will be a few hundred ringgit extra to spend or save. And with two kids to worry about, it helps a lot,” he was quoted as saying.

The Star quoted economist Lee Heng Guie of the Socio-Economic Research Centre as saying that people would have some savings because of the adjustment and, therefore, these measures mattered to them.

With the tax cut, those earning between RM20,001 and RM35,000 annually will see their tax rate drop from 5% to 3%, while those making between RM35,001 and RM50,000 will go from 10% to 8%.

Those taking home between RM50,001 and RM70,000 will pay 14% of their taxable income instead of the 16% now. Tax rates remain unchanged for those above these brackets.

Najib had said, in tabling the budget in October last year, that the government would continue to increase household dispo­sable income and narrow the income gap in the country.