Malaysia has lower income tax rate if you compared to most Europe countries (e.g. look at the Irish tax scheme that I posted quite sometime ago), United State and Australia and you should feel grateful for it.
However, when you come to compensation we're at the losing side. We pay taxes but we do not get back any compensation from the government especially for the middle income group people like me. So technically speaking, our low tax rate has been offset with the compensation that western countries offer.
That is also why personal finance is more important here in Malaysia as compared to those countries! :) For instance, we can't rely on government to plan for our retirement, you can't totally rely on EPF which is not enough in most of the cases.
Having said so, if we compare to Hong Kong and Singapore where compensation is similar to Malaysia, our income tax rate can not be considered low anymore. In fact, it is pretty high comparatively. Let's see the table below where I get it from Personal Money magazine:
Hong Kong Tax Rate (2011/2012)
|Income Bracket (HK$)||Tax Rate|
|1 - 40K||2%|
|40K - 80K||7%|
|80K - 120K||12%|
Singapore Tax Rate (2012)
|Income Bracket (S$) - 2012||Tax Rate|
|1 - 20K||0%|
|20K – 30K||2%|
|30K - 40K||3.5%|
|40K - 80K||7%|
|80K - 120K||11.5%|
|120K - 160K||15%|
|160K - 200K||17%|
|200K - 320K||18%|
Malaysia Tax Rate (2011)
|Income Bracket (RM) - 2011||Tax Rate|
|2.5K - 5K||1%|
|5K - 20K||3%|
|20K - 35K||7%|
|35K - 50K||12%|
|50K - 70K||19%|
|70K - 100K||24%|
Well as you can see from the table above, Malaysia tax rate is higher than Hong Kong and Singapore based on the income bracket. Let's take an $100K income as example for comparison:
Income Tax Rates Comparision with $100K Income
|Marginal tax rate||12.0%||11.5%||24.0%|
|Total tax payable||HK$5.2K||S$5.1K||RM14.325K|
|Effective tax rate||5.2%||5.1%||14.3%|
As I commented in my previous post on 3 thankful things of Malaysia 2013 budget, most tax scheme is progressive tax scheme:
Which means, if you earn RM50K, it doesn't mean you will get taxed at 12% for all RM50K but only RM20K. For the rest of the RM30K it gets taxed at lower tax rate than 12% based on the tax income bracket scheme.
That's why if you look at the table above, there is marginal tax rate and effective tax rate. The effective tax rate is the actual tax rate. So for $100K, the effective Malaysian tax rate is 14.3/5.2 = 2.75 time higher as compared to Singapore and Hong Kong.
Also, few interesting facts that you MUST KNOW where I read an article recently from theedgemalaysia.com:
- Less than 10% of workforce in Malaysia pays tax
- Number of taxpayers represent 5.6% of the population
- 19.9% of Hong Kong population pays tax
- 20.7% of Singapore population pays tax
These facts conclude that number of individual tax payers in Malaysia is extremely low and most importantly is:
"The burden of personal income tax is disproportionately borne by a small group"
A comment from facebook reader on the recent Malaysia 2013 budget saying the the individual tax rate is too high because the maximum tax rate(i.e.26%) is even higher than the corporate tax rate (i.e.25%). Well, I think he has a very good point. Either we tax too low for corporate or we tax too high for individual.
So now, do you still think Malaysia income tax rate reasonable given that only 5.6% of population pays tax? Something is very wrong, in my opinion. What do you say?