Higher tax relief is no relief

With rising cost of living and other inflationary factors, an additional RM300 a month won’t go very far, especially for those who are already struggling to make ends meet.

A recent proposal by Bagan MP Lim Guan Eng that every taxpayer be allowed to keep more of the money he earns, rather than hand it over to the government should garner wide support.

With rising prices, inflation, added commitments and other stress-inducing financial factors these days, we need a lot more of it to go through the day, never mind make the globe spin.

Lim had proposed that the personal relief be raised gradually from RM9,000 a year currently to RM12,000.

A back of the envelope calculation shows that this would leave an extra RM3,300 to RM3,500 in the average income earner’s pocket each year, based on an average individual monthly income of RM3,500 to RM9,000, with incomes in urban areas more likely higher than in rural locations.

That works out to a little over RM300 a month — not a large sum by any means.

As T Saravanan, CEO of the Federation of Malaysian Consumers Associations (Fomca) points out, it is unlikely to lead to a significant improvement in the overall welfare of the average income earner.

He is right. Most households are already grappling with rising prices for essential goods and services — from food, utilities, and transportation to healthcare, childcare, and education.

Take food for a start. A simple meal of noodles or “chap fun” in a coffeeshop in the Klang Valley now costs RM10 to RM15, up from RM7 to RM8 just five years ago. That is an increase of 40% to 80%.

In the same period, the average monthly income rose 17% — from RM2,933 in 2020 to RM3,441 in 2025, according to data from the department of statistics.

With similar or higher price increases for other necessities, bumps in salaries are not keeping up with rising costs.

Of course, government handouts in the form of the SARA aid and other programmes help, but they do not take you a long way.

In any case, only those in the B40 group — the 40% of Malaysians who earn the least — are entitled to most of these financial benefits.

Those in the M40 group — we categorise them as middle-income earners — are struggling to make ends meet too but are not entitled to aid like the eKasih.

As Saravanan sees it, the extra RM300-plus per month that can be derived from higher personal income tax relief will likely be used to offset higher living costs rather than raise discretionary spending or long-term savings.

One of our greatest challenges is inflation. While increases may be moderate, they accumulate over time and, according to Saravanan, they add up quickly across multiple spending categories.

This reduces the real value of any tax-related savings.

“In this context, the proposed tax relief functions more as a short-term buffer to manage rising expenses than as a meaningful gain in real income,” he pointed out.

Any benefit from a higher personal income tax relief is unlikely to count for much. The extra RM300-plus per month may help to offer some breathing space in case of emergency, but it will not help to counter the impact of inflation, subsidy rationalisation, or potential tax adjustments that may raise household expenses.

There also are other structural issues to take into account, such as stagnant growth in wages, rising household debt, and weak price controls in certain sectors.

Saravanan pointed out that without complementary measures to improve income growth and rein in cost pressures, the benefits of higher tax relief will quickly come to nought.

He proposed that personal tax relief levels be reviewed regularly to ensure that they align with the actual cost of living.

“Otherwise, they do not meet economic realities, limiting their usefulness to consumers and taxpayers over time,” he added.

There are many other steps that the government can take to ease the pain on the people. For a start, raising the minimum wage — now set at RM1,700 a month — would be a start.

The minimum wage can serve as a benchmark for businesses when they determine salary levels — a higher minimum wage can push them into offering higher wages.

Otherwise, as Fomca president N Marimuthu proposes, everyone should just become more prudent. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.