Impact of taxing high-income earners

"I do not believe that the actual increase for the higher income will have a very sensible impact on consumption path," said Ferlito.

THE proposed rise in taxation for high income earners raises the question of whether it will have an impact on local consumption patterns.

Experts do not think so and it will likely have a muted impact as the rise is marginal and manageable.

However, it can hinder the income progress of local talents should the trend persist in the longer term.

It is to be noted that a similar move had been implemented in previous budgets where taxes for a certain group of higher income earners had been raised.

In a world that is becoming borderless, talents may opt to relocate to another country that offers better individual tax incentives, according to analysts.

“While the rate of increment in tax for income earners of more than RM100,000 is still manageable, the government should put in place policies to facilitate a high income economy.

“The policies should attract skilled workers who are involved in more sophisticated areas of the economy,” Socio Economic Research Centre executive director Lee Heng Guie tells StarBizWeek.

Lee points out that neighbouring countries ,including Singapore, also have tax rates that are competitive to attract the necessary talents.

“The increase in personal income tax rates for the high income earners had been done in Budget 2016.

“Bear in mind the group of high income earners may not say much when this matter is discussed on the public media since their numbers are very small in proportion to the masses but their actions may have a more profound impact in the long run,” Lee adds.

In Budget 2016, income taxes were increased from 25% to 26% for people earning between RM600,000 and RM1mil and it was increased to 28% for those earning above RM1mil.

Meanwhile, Centre for Market Education chief executive officer Carmelo Ferlito says the tax reduction for income earners of up to RM100,000 per year is a also welcomed move.

“But I do not believe that the actual increase for the higher income will have a very sensible impact on consumption path.

“Obviously, it has more of a psychological impact.

“I understand the rationale behind the move to increase tax rates for income earners of above RM100,000 but it must also be accompanied by a clear strategy for rationalising expenditures (including subsidies).

“It seems like the government is shifting the burden of fiscal responsibility on higher incomes, without addressing the spending issue,” Ferlito says.