Budget 2019: Takeaways for the middle class

Tax relief: Budget 2019 will see the separation of the previous combined RM6,000 tax relief allocated for EPF contribution and life insurance or takaful premium into RM4,000 and RM3,000.

BY now, the hype of Budget 2019 would have died down somewhat and Malaysians from all walks of life would have a pretty good idea how the budget could directly affect them or otherwise.

Clearly, many new incentives and taxes will be introduced in 2019, and many perceive that the budget is primarily targeted at the B40 segment which therefore begets the question, where does that leave the middle class?

It may appear to be déjà vu again for the umpteenth time where the “in-betweens” seem to be unaccounted for. But do not heave that sigh of resignation yet. I do not believe that the middle class has been ignored; in this article, I will be sharing what you need to look out for in the budget and the recommended actions to pursue in order to take full advantage of what Budget 2019 has to offer.

1. Review your life insurance policies and total premiums paid

Budget 2019 will see the separation of the previously combined RM6,000 tax relief allocated for EPF contribution and life insurance or takaful premium into RM4,000 and RM3,000 respectively. Prior to this, many individuals, whose EPF contribution already exceeded RM6,000, found little reason to purchase life insurance for tax relief purposes as they felt that they do not stand to gain any additional benefit from doing so. With this new move, individuals can take up life insurance policies (if they haven’t done so yet) in order to enjoy up to RM3,000 tax relief. I strongly agree with the government’s initiative to encourage more people to have life insurance for protection. Therefore if you are one of those who have been filling in the “default” RM6,000 amount deduction all this while based on your EPF contribution alone, it is timely to review where your life insurance premiums stand.

2. Review your property portfolio

Budget 2019 introduced two new property related measures: 5% real property gains tax (RPGT) imposed on Malaysians for the disposal of properties irrespective of tenure, and the 4% stamp duty on the transfer of properties valued above RM1.0 million. These measures are expected to further dampen the property market, especially, the higher end segment.

As a precaution, I would suggest that a smart investor only maintains a maximum of 40% in property asset class out of the total investment portfolio. Meaning, if you currently have more than 40% in property holdings, you should consider selling some properties to reduce your risk exposure in the property market.

3. Review/revise your household expenditure

In Budget 2019, fuel subsidies will be given to individual car owners and motorcycle owners with vehicle engine capacity of below 1,500cc and 125cc respectively. Owners of non-subsidised vehicles will have to pay petrol prices determined weekly based on the Automatic Price Mechanism. While the workings of the subsidy have yet to be ironed out, it is timely to review your weekly or monthly petrol costs should your vehicle falls into the eligible category in order to take advantage of this benefit when it rolls out next year.

A RM100/RM50 monthly unlimited public transport pass will also be introduced in 2019. It is anticipated to provide much welcomed cost savings to working professionals and their children who commute frequently to work and school/college by public transport. Given that the cost for petrol and car maintenance can be quite a tidy sum, it may be timely to inculcate the practice of taking public transport among your family members so that you are able to utilise this benefit.

While the above benefits may help consumers to lower their expenses, news of the government’s proposal to increase minimum wages to RM1,100 may have an indirect impact on living costs. This is because businesses that have to bear higher salaries for their workers are very likely to pass the costs on to consumers. In short, prices of goods and services will inevitably go up.

As a smart consumer, you should build a household budget to monitor and minimise the impact of price increases. Ideally, your budget should still give you the same or more cash surplus so that you can invest the surplus. For instance, if you are able to save on petrol and transportation by making use of the benefits mentioned above, then it may be possible to offset the price increase of other goods and services.

Without proper budgeting, you may be at risk of over spending, leaving nothing extra at the end of the month – or worse, you could end up spending more than what you can afford. Even though we cannot avoid inflation, a little effort can prevent us from becoming its victim.

4. Review your income tax planning

Savings in SSPN (National Education Savings Scheme) is another measure for you to qualify for additional tax relief under Budget 2019, as the quantum will be increased from RM6,000 to RM8,000. Families with young children are encouraged to participate in this scheme for its various benefits apart from the tax relief.

If you have concerns about under paying on your income tax, take advantage of the Special Voluntary Disclosure Programme (tax amnesty). This programme allows taxpayers to voluntarily declare any unreported income until June 30, 2019 and pay a 10%-15% penalty as opposed to the current penalty rate of 80%-300%.

Meanwhile, business owner of SMEs with less than RM2.5mil paid up capital, would enjoy a reduction from 18% to 17% on the corporate income tax rate for taxable income of up to RM500,000. Thus, you may want to review your company’s tax payments and adjust your tax planning accordingly.

5. Review your overall investment portfolio

If you are an investor who is keen on dabbling in alternative options to conventional investment products, announcements made in Budget 2019 may have piqued your interest. One such innovative investment opportunity presented itself in the form of a property crowdfunding platform. In addition to its function as an alternative means of financing for first-time home buyers, it also comes across as an interesting and creative investment option for local investors. However, before you start liquidating your other investment assets in preparation to dive into this latest avant-garde investment, it is best to be patient and wait for more information to be officially available. With all investments, practice smart investing habits such as due diligence h and research before parting with your hard-earned money.

In addition, Budget 2019 will introduce a new framework to approve and monitor the buying and selling of digital tokens and currencies. If you are a digital token investor or intend to be one, you should keep yourself updated on the regulatory guidelines because while opportunities may be presented, it also means that there are risks involved. Due to the high-risk nature of digital token investments, I would propose a maximum cap of 2% of your total investments.

“A budget is telling your money where to go instead of wondering where it went” – Dave Ramsey, American businessman, author and trusted voice on money

What was announced in Budget 2019 does not make things any less unpredictable, in fact one could say that there is even more uncertainty around the corner. We are already living in a highly volatile financial world where it is increasingly challenging to map out our financial future. However, one important lesson that we can all take away, is that it is vital to prepare our individual budgets for 2019 so that we are ready to capitalise on opportunities when presented and be alert enough to recognise and avoid any potential financial threats.

As Ramsey also quoted, “When you create a basic budget and stick to it, it will suddenly seem like you have more money.” Not entirely convinced? Why not try it and let me know how it works out.

Yap Ming Hui (ymh@whitman.com.my) is thrilled that his mission to empower every Malaysian with a roadmap to financial freedom has finally come to fruition with the release of a free DIY roadmap to financial freedom tool on the iWealth mobile app.

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