Budget 2021: Key tax takeaways

Photo: Faihan Ghani/The Star

WE live in uncertain and challenging times. The country is currently going through unprecedented health and economic crises. Budget 2021 aims to mitigate the impact

of the Covid-19 pandemic, revitalise investments and encourage business recovery. To this end, a slew of tax measures and incentives have been announced to reinvigorate the country’s economic growth.

In this respect, the income tax rate for resident individuals will be reduced by 1% for those in the RM50,001 to RM70,000 annual chargeable income tax bracket. This reduction will result in a tax savings of RM200. Though small, this measure is estimated to benefit 1.4 million taxpayers in the middle-income group.

The government also took cognisance that many employees have lost their jobs due to employers facing difficulty in sustaining their businesses. To try and soften the blow, for 2020 and 2021, the government has increased the tax exemption for compensation received for loss of employment from RM10,000 to RM20,000 for each year of full service.

Further, taxpayers who have lost their jobs due to the pandemic will be glad to know that the government has proposed that the tax relief of RM7,000 a year be expanded to cover fees for attending upskilling and self-enhancement courses in any field of skill recognised by the Human Resources Ministry.

From a medical perspective, the limit of tax relief on medical expenses for self, spouse and child for serious diseases has been increased from RM6,000 to RM8,000, and the tax relief limit for full medical check-ups has been increased slightly from RM500 to RM1,000. Additionally, relief for expenses pertaining to medical treatment, special needs and parental care have also been increased from RM5,000 to RM8,000. All in, these increments, although not entirely significant in the grand scheme of things, should still go some way in easing the financial burden of individuals and families in respect of medical costs.

As the pandemic continues to drive the national unemployment rate to its highest in the past decade, the government must take action to ensure that job opportunities remain viable through investments. To make Malaysia a preferred destination for investment and supply chain, companies in targeted sectors relocating their operations to Malaysia will have their tax incentive period extended for another year.

Acknowledging that employees in the tourism sector have taken a massive hit, the wage subsidy programme has been extended for another three months, earmarked especially for this industry – which includes retail – at RM600 a month for workers earning RM4,000. A whopping RM1.5bil is specifically allotted here and is estimated to support 70,000 employers and 900,000 employees.

The property sector did not escape the government’s attention. There was good news for first-time buyers as the stamp duty exemption has been increased up to RM500,000 with such exemption being extended until Dec 31,2025.

From an indirect tax perspective, certain categories of sales tax and tourism tax were accorded tax exemptions, while taxes were also imposed to further sustain the government’s revenue base.

Of interest is vaping, or electronic cigarettes. The government will impose an excise duty of 10% on devices for all types of electronic and non-electronic cigarettes effective from Jan 1,2021. The liquid used in electronic cigarettes will be charged excise duty at a rate of 40 sen per millilitre. Vaping will now indeed be taxing.

Other tax measures include increasing the claimable lifestyle tax amount from RM2,500 to RM3,000. Also, further extensions on tax relief periods have been given for contributions to private retirement schemes, the National Education Savings Scheme (SSPN) as well as tax incentives for the returning expert programme. This last measure is intended to stimulate investment and spur the economic recovery process.

To sum up, the tax measures announced have been aimed at easing the financial strain on individual taxpayers and stimulate much-needed investment. Targeted and short-term measures have been introduced to assist the rakyat to cope with the uncertain economic outlook. This will perhaps be the order of the day to spur economic growth until a vaccine is successfully produced.

Budget 2021 was tabled in Parliament on Nov 6; as at Nov 23, it has yet to be passed.


Kuala Lumpur

Note: The writer is a lawyer specialising in taxation and dispute resolution.

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Budget 2021 , taxation , economy


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