How much tax an individual can save from Budget 2023?
With the recent announcement of the revised Budget 2023 by the Government of Malaysia (the Government), the adjustment of personal income tax brackets has gained lots of attention from the public. After all, everyone has to pay taxes, so this announcement would undoubtedly bring about a widespread effect. In view of the bearish economic outlook, we should try to be as thrifty as possible. By paying the correct amount of taxes, the extra cash surplus can remain in your wallets or bank accounts. Let’s take a look at the personal tax benefits as follows:
Individual Income Tax Rate Adjustment
From the perspective of an ordinary Malaysian citizen, the notable change in this year is the 2% reduction in the personal income tax rate for the annual chargeable income bracket between RM35,000 and RM100,000. In addition, the income tax rate for annual chargeable income between RM100,000 and RM1 million will be increased by 0.5% to 2%. For the ease of understanding, please refer to the table below for the changes made:
Let’s illustrate the above with an example:
Dave’s monthly income is RM5,000, which is equivalent to his annual income of RM60,000. Without claiming any tax relief, he will be required to pay a personal income tax of RM3,100 (RM1,800 for the first RM50,000 and RM1,300 (RM10,000 x 13%) for the remaining RM10,000 (10,000 x 13%)) in 2022. After the tax rate reduction in 2023, his personal income tax will be reduced to RM2,600 (RM1,500 for the first 50,000 and RM1,100 for the remaining 10,000 (100,000x 11%)). This results in RM500 savings in taxes.
In view of the change, individuals with chargeable income above RM100,000 will have to pay a higher tax amount in this year compared with last year (Year 2022). Low and middle-income taxpayers rejoice at the availability of higher tax relief amount and reduced tax rates, others are distressed that the tax relief are not enough to offset the pressure of rising living costs, or they will need to pay higher taxes due to their high earning incomes. Therefore, this adjustment can be said to be one man’s meat is another man’s poison.
The maximum tax relief is maintained at RM3,000. Its validity period is extended for another year to Year of Assessment (YA) 2024.
The tax relief is increased from RM8,000 to RM10,000 and the scope of this tax relief is expanded to include early intervention expenditure for Autism, Down Syndrome, and Specific Learning Disabilities. It is subject to a maximum tax relief amount of RM4,000.
ii. Charitable hospitals operated by a private limited company (limited to 10% of gross income); and
iii. Tabung Komuniti Filem and Pembangunan Filem Kenegaraan under the National Film Development Corporation Malaysia (FINAS)
The details of this newly introduced tax system are yet to be released, as such the scope and extent of its implication for the public remain unknown. However, it is certain that once this tax is implemented, the price of luxury goods in Malaysia will be higher than in neighbouring countries. Experts point out that this is likely to affect the tourism industry in our country, as tourists who want to buy luxury goods will be inclined to spend their money in other countries instead.