Goodies for man in the street

IN today’s economic scenario where most individuals feel aggrieved by the rising cost of living, the Budget 2009 proposals are being eagerly awaited with the hope that there will be “goodies” to bring some cheer to the man in the street.

Some of the measures introduced might include subsidies, grants, greater allocations of funding/loans, as well as some tax breaks/measures that would enable taxpayers to have greater disposable income.

Let’s look at some of the tax measures that might be proposed or are perhaps part of the wish list of most taxpayers.

A reduction of the individual tax rates, coupled with the broadening of the band of taxable income (i.e. increasing the amount of taxable income that is subject to tax at the relevant scheduler tax rates), would be in line with the expectations of taxpayers.

Currently, the tax rate for corporations is at 26% and will be reduced to 25% in 2009 but individuals are taxed at the rate of 28% if the taxable income exceeds RM250,000 and it is hoped that there will be a streamlining of the rates.

The amount of tax relief available, such as the personal allowance of RM8,000, is seen as inadequate, especially in these inflationary times. It would be a step in the right direction from the taxpayers’ perspective to have this increased to perhaps RM12,000 per individual. A review of some of the other allowances, such as child relief, would be welcome as well.

Overpaid taxes need to be refunded expeditiously as this will give taxpayers the cash in hand that might be much needed for various purposes.

Due credit needs to be given to the Inland Revenue Board (IRB), which has improved the refund process tremendously over the last couple of years in this respect. However, it appears that it could be further improved.

A majority of the individual taxpayers earn employment income. Salaries as well as the various allowances received, such as travelling and meal allowances, are subject to tax and there is typically a deduction done at source based on the Schedular Tax Deduction system.

For allowances received by individuals, the amount used to carry out their employment duties can be claimed as a tax deduction in computing the final tax liability (when the Form BE is filed) but these deductions must be supported by the relevant documentation, such as invoices or vouchers.

It is felt by many quarters that such allowances should be deemed to have been fully utilised in the carrying out of employment duties and, therefore, should not be taxed.

This will certainly put more money in the pockets of taxpayers and avoid the tedious process of being taxed first and claiming back your money only on the basis of being able to provide documentary evidence.

Other useful short-term measures include a reduction of the Employees Provident Fund contribution rate from the current minimum of 11% (a similar measure was introduced on a short-term basis during the financial crisis in the late 1990s).

The Government will obviously need to look at the impact that the above tax measures will have on the collections by the IRB. If it feels that some of these measures will erode the tax base, then it might not be in favour of introducing them.

Perhaps in view of the fact that, statistically, only a small fraction of the working class group actually pays taxes, tax measures introduced might not have a huge bearing on the net disposable income of the average Joe. In this regard, a combination of tax measures and subsidies might do the trick.

·By HARVINDAR SINGH

The writer is managing partner, Harvey & Associates