Budget 2006 seen to help counter rising living costs

THE Government should be commended for responding promptly to public outcry over the recent oil price hikes, which led to the increase in prices of certain goods and services, by implementing the following measures, as announced on Sept 8: 

no further increase in fuel prices, at least until end of the year;  

reduction of road tax for certain categories of vehicles;  

no increases in toll rates until Jan 1, 2007; and  

greater financial assistance to the needy, orphans and senior citizens.  

The Government hopes these measures will benefit consumers, particularly the lower income group, in coping with the rising costs of living, and has indicated that more measures will be unveiled, possibly in the coming Budget 2006 scheduled on Sept 30.  

This commitment helped alleviate the anxiety of consumers over the steadily rising inflation rate and has led to growing expectations of more good news to be announced in the coming Budget. So, what are some of these expectations?  

To the man-in-the street, a reduction in personal income tax rates and/or an increase in the personal income tax bands would be a much welcome measure.  

Although one may argue that such cuts would hamper the Government’s efforts in reducing the country’s fiscal deficit, nevertheless it has now become a compelling reason in view of the Goods and Services Tax (GST) regime coming on-stream in about 15 months. 

To soften the impact on the fiscal deficit, the reduction in the tax rates could be done in a staggered basis, e.g. the top personal income tax rate could be reduced from the current rate of 28% to 27% for the year of assessment 2005, and then to 26% and 25% for the year of assessment 2006 and 2007 respectively.  

Alternatively, the taxable income bands could be widened such that the top tax rate of 28% is applicable to a higher income threshold than the existing level of RM250,000.  

This measure will not only benefit all tax-paying Malaysians but also enhance the country’s competitiveness as a regional hub and thus, serve to attract and retain foreign talent in the country.  

As a comparison, the top personal income tax rate in Singapore will be reduced from 22% to 21% in year of assessment 2006 and thereafter to 20% in year of assessment 2007.  

Also, the suggested tax break may not have a negative impact on tax revenue after all, due to the anticipated higher compliance rate under the self-assessment system, which imposes stiffer penalties for non-compliance as well as increased tax audit activities by the tax authorities.  

In line with this, the individual taxpayers, particularly sole-proprietors, would look forward to any form of tax relief, be it a tax deduction or rebate, for expenses incurred in engaging professional assistance in the filing of tax returns and appeal procedures.  

Tax return preparation fees are allowed as tax deductions in other countries such as New Zealand.  

Besides a reduction in tax rates, the general public is also hopeful that the overall package being formulated by the Government to reduce the people’s burden will include tax breaks such as:  

Higher child relief (the present RM1,000 for each unmarried child below the age of 18 years is considered inadequate given the escalating costs of living and education);  

Rebate be given to expenses incurred by working parents for the use of child-care facilities or kindergarten;  

Relief for medical expenses for parents of RM5,000 be extended to include traditional methods of treatment;  

Relief for parental support;  

Relief for medical, dental and hospitalisation fees that are not covered by insurance;  

Relief for employment of domestic helper for working couples;  

Relief for home mortgage interest for principal residence (currently, such an incentive is given to first-time owners of residential property costing RM100,000 to RM180,000 and where such property was acquired between June 1, 2003, to May 31, 2004; and  

Relief for fees incurred on approved courses in non-technical/vocational disciplines, as well as post-graduate studies.  

Thang Mee Lee is a senior manager with Ernst & Young Tax Consultants Sdn Bhd