This article first appeared in The Edge Malaysia Weekly on February 27, 2023 - March 5, 2023

THE revised 2023 Budget made a special mention of the M40, a relative rarity given that most of the attention tends to centre on the B40 — the most vulnerable group, especially during an economic downturn.

But in his budget speech, Prime Minister Datuk Seri Anwar Ibrahim said: “The B40 group was often given various forms of assistance while the middle group, M40, showed their patience despite being squeezed by the gripping rise in the cost of living. As such, the government agreed to increase the disposable income of the M40 group through the reduction of individual income tax rates.”

Taking a cue from the earlier Budget 2023 that was tabled last October by the previous administration, the revised budget has extended the two percentage point (ppt) tax reduction for those with a chargeable income of between RM35,000 and RM100,000 annually.

Those in the chargeable tax income bracket of between RM35,001 and RM50,000 will enjoy a reduced tax rate of 6%, from 8%; those in the RM50,001 to RM70,000 bracket will be taxed 11% from 13%; while those in the RM70,001 to RM100,000 bracket will be subject to a lower tax of 19%, from 21%.

The reduction in tax rates is expected to benefit some 2.4 million taxpayers, and provide them with RM1,300 in additional disposable income.

In total, Anwar said the initiative was expected to increase the people’s income by RM900 million.

Under the original Budget 2023, a 2ppt tax rate cut was proposed for those in the RM50,000 to RM100,000 income bracket.

PwC Malaysia tax leader Jagdev Singh welcomes the tax cuts as they will provide much-needed relief to the middle-income group, who have been left out in previous budgets although they are not spared the impact of soaring inflation.

“The costs for the government are partially offset by the increase in tax rates of between 0.5ppt and 2ppt for individuals in the RM100,001 to RM1,000,000 tax brackets as well as the general increase in wages in the last year which results in increased taxes. The increase in tax rates is expected to impact less than 150,000 taxpayers,” he says in a statement.

Although the 2ppt cut results in lower tax collection, the impact should be minimal since the money saved would be contributed back to the economy in the form of higher consumption, says Sim Kwang Gek, country tax leader at Deloitte Malaysia.

Other tax reliefs announced by Anwar for the M40 include increasing the tax relief on medical expenses to RM10,000 from RM8,000. Moreover, there will be an extension in the scope of income tax relief for life insurance premiums or life-takaful contributions to cover voluntary contributions to the Employees Provident Fund of up to RM3,000, to encourage retirement savings.

Another initiative to encourage higher savings among the M40 group is the increase in the maximum individual limit for Amanah Saham Bumiputera (ASB) and Amanah Saham Bumiputera 2 (ASB2) to RM300,000 from RM200,000.

The size of Amanah Saham Malaysia’s fund will also be expanded by RM5 billion.

Individuals with ASB savings of less than RM30,000 will receive a higher payout of 5.1% annually, while those with more than RM30,000 will receive 4.6% annually.

In addition, the government pledged to introduce a targeted subsidy mechanism that will benefit the lower-to-middle income group.

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