Saturday, 26 October 2013

Budget 2014 : What To Expect Now?

Dressed in a bright orange color baju Melayu, our Prime Minister delivered Budget 2014 with the theme "Strengthening Economic Resilience" at Parliament yesterday (25 Oct 2013). The key points many Malaysian expect from the budget include:
  1. When would GST be implemented?
  2. What other subsidy cuts to be expected?
  3. Implementation of new tax rules which covers property tax gains, income tax and related tax matters.
The gist of Budget 2014 should have appeared in today's papers and I believe most would have read the list by today. For those whom have yet to see the list,  you can read the full list HERE

Key benefits of Budget 2014 that directly impact us financially include:
1. Monthly Tax Deduction (MTD) as Final Tax, effective from 2014 assessment year. 

PM : "Currently, tax payers with employment income and subject to monthly tax deduction (MTD) are required to submit tax returns before or on 30 April of each year. The requirement to submit tax returns has confused tax payers from whom MTD has already been made and yet they are still required to submit the tax returns to the Inland Revenue Board."

PM : "To facilitate tax payers with employment income whose MTD have been made, it is proposed that these tax payers are not required to submit tax returns if satisfied their MTD is a final tax. This proposal is effective from year assessment 2014"

2. Chargeable income subject to maximum rate to be increased from exceeding RM100,000 to exceeding RM400,000. *Current maximum tax rate at 26 per cent to be reduced to 24 per cent, 24.5 per cent and 25 per cent. Effective from year 2015 assessment.

3. Individual income tax rates be reduced by 1 to 3 percentage points for all tax payers to increase their disposable income. With this measure, 300,000 persons who currently pay income tax will no longer pay tax. Generally, families with monthly income of RM4,000 will no longer have tax liability. Effective from year 2015 assessment.

Whether GST will be implemented or not? The answer is YES and the details as listed below:

1. Sales tax and service tax be abolished. These two taxes will be replaced by a single tax known as the Goods and Services Tax (GST).
PM : "Currently, the inflation rate is low at 2%. The Government believes that this is the best time to implement GST as the inflation rate is low and contained."

PM : "With the implementation of GST, the Government will be able to address the weaknesses in the current taxation system. As an example, if we were to buy a carbonated drink in a restaurant today, we would not notice that we are paying double taxes which are sales tax and service tax."

2. The GST rate is fixed at 6% and to be effective from 1 April 2015.

3. GST will not be imposed on basic food items such as rice, sugar, salt, flour, cooking oil, lentils, herbs and spices, salted fish, cencalok, budu and belacan

4. GST will not be imposed on piped water supply, and the first 200 units of electricity per month for domestic consumers;

5. GST will not be imposed on services provided by the Government such as the issuance of passports, licences, health services and school education;

6. Transportation services such as bus, train, LRT, taxi, ferry, boat, highway toll as well as education and health services are exempted from GST; and

7. Sale, purchase and rental of residential properties as well as selected financial services are exempted from GST.

What about Subsidy Cut?
In his speech, the Prime Minister mentioned that now is the best time for GST to be implemented as the inflation rate is low and contained. However, his statement contradicts the common fact that reducing subsidy will definitely cause to rise. 

After experiencing an overall price increase in consumer goods and services when the petrol subsidy was reduced by RM0.20/litre, we now faced with the prospect of further rise in prices when Sugar Subsidy is removed in 2014 (as announced by the Prime Minister). 

The current sugar subsidy enjoyed by Malaysian is RM0.34/kg. Once this subsidy is removed, the new price of sugar will be RM2.84/kg as compared to RM2.50/kg previously as shown in the red box below:

Considering that sugar is a must have ingredient in restaurants and food courts, many middle income families with both husband and wife working will have to face the prospect of spending more on food. 

The scenario that many Malaysian will faced when eating in a restaurant:
 = GST of 6% + indirect price increase caused by sugar subsidy removal

On a positive note, the removal of sugar subsidy might encourage Malaysian to
1. Reduce eating outside.
2. Cook their own meals at home, thereby reducing expenditure and saving up more.
3. Stop drinking sugary drinks.

The sugar subsidy removal is indeed a wise choice by the Government considering that other subsidized items listed in the previous table are extremely vital that Malaysian cannot do without. 

How much is the Government saving from removing sugar subsidy? 
Based on the table below, for 2013, our Government is subsidizing approximately RM350.2 million for sugar. 

In all honesty, savings of RM350.2 million through the removal of sugar subsidy has minimal impact in terms of reducing our country's deficit that has already exceeded RM500+ billion. On the other hand, the "rakyat" would be bearing the brunt of this move for surely the cost of eating out and purchasing goods that have sugar contents will increase exponentially.

All in all, the Budget 2014 has a mixture of good and "not" so good initiatives. While we welcome  the move to increase the maximum tax range from RM100,000 to RM400,000, we are also faced with the prospect of higher inflation. Sigh..this budget reminds me very much of this proverb "Never look a gift horse in the mouth."

Cheers and Happy Eating At Home!

Read more about inflation:

If you like reading this post, it would do me a great favor by:
1. Sharing this post on your Facebook!
2. Liking my Facebook Page

You can also contact me at to find out how financial planning can help you face inflation.

1 comment:

  1. By not filing income tax return, majority of salary workers who arent financial savvy will lose out on the tax return. Current MTD schedule actually taxed more than what you have to pay due to the tax relief provided.

    With this, the government may even gain more in term of revenue since tax payers are not seeking for tax return, all because "I'm lazy to file the tax return and I am allowed to do that legally"