2009 Budget Commentary

For immediate release

KUALA LUMPUR 29 AUGUST 2008 - The recent budget announcement had good news for the individuals. A noteworthy announcement was the reduction in the tax rates in the top bracket and the middle bracket.

To ensure individual income tax rates remain competitive, the Budget has proposed that the income tax rates of resident individuals be amended as follows:

• The tax rebate for chargeable income group up to RM35,000 be increased to RM400 from the present RM350. This effectively means that the taxpayer in this group now pays RM50 less tax.

• The tax rate in the middle range of chargeable income for RM35,000 to RM50,000 category, be reduced from the current 13% to 12%.  Thus resulting in a tax saving of RM150 to the taxpayer.

• The tax rate for chargeable income in the group exceeding RM250,000 is reduced by 1% - the rate is now 27% as compared to the earlier rate of 28%.

While the reduction is welcome, some quarters feel that the rate reduced would have only an insignificant effect on the overall tax impact. Nevertheless, one must take note that a 1% of RM250,000 is RM2,500 and the Government is foregoing this amount in its effort to reduce the impact of the oil price on the general cost of living.

Beside trying to reduce the price of goods by way of exempting sales tax and import duties as well as controlling the price of certain essential goods, this is another strategy to increase the disposable income of taxpayers.

Despite the various calls to reduce contributions of the Employees Provident Fund (EPF) of the employees in order to put more money in the taxpayer’s pocket as what being implemented in April 2001 and June 2003 as short term measure, the Government does not see this as wise move this time as it might affect the savings meant for old age, especially when the monetary value may be less later than now.

Another move to increase the disposable income was made by removing the tax on interest income received by individuals from monies deposited in all institutions approved to take deposits. Currently, the interest paid on such deposits are taxed at 5%, while the deposit in selected institutions and deposits exceeding 12 months in certain institutions are exempted from tax.

This move would come into force with effect from 30t August 2008 and hopefully will boost the real income of the individuals from interest earnings on deposits placed in financial institutions. This certainly is good news for pensioners and others who are relying on the interest earnings from deposits to supplement their pension and other investment income. 

To encourage the employers to provide more benefits to their employees and to assist in reducing the cost of living, the Budget proposes that employees be given tax exemption of allowances, benefits in kind and other perquisites received from employers.

Items covered include petrol allowances from the home to the office or work place up to RM2,400 a year and allowances of up to RM6,000 a year paid by employers to employees who have incurred these expenditure in the performance of their official duties.  These two measures alone would be a big relief for employees particularly those travelling in the course of their work.

The tax authority has always treated the cost of travelling between the home and office as a private expenditure that is not incurred in the production of gross income. The move to allow a deduction for this expenditure is therefore a major shift in the tax rules, and certainly goes a long way in reducing the impact of the high cost of fuel that has absorbed into the real income earned from employment.

Overall, the Budget has taken the plight of the ordinary man on the street into account and has therefore lived up to its theme of ‘A Caring Government’.

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Further enquiries, please contact:

Ms. Seah Siew Yun, Director of Tax Department
T 03 2692 4022
F 03 2721 2588
E seah@gt.com.my

Ms. Hanisah Gani, Manager of Corporate Communications Department
T 03 2692 4022
F 03 2732 1010
E hanisah@gt.com.my

Issued on: 29th August 2008

Notes to editors:

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About Grant Thornton International Ltd

Grant Thornton International is one of the world's leading organisations of independently owned and managed accounting and consulting firms. The strength of each local firm is reflected in the quality of our organisation. Grant Thornton International member firms share a commitment to providing the same high quality service to their clients wherever they choose to do business.

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