Budget 2024 is the most expansionary to date but with the government focused on fiscal consolidation, what goodies were there for the rakyat? Thanneermalai Somasundaram from Thannees Tax Consulting Services advises us whilst explaining to us the new taxes and the importance of paying it.
Presenter: Wong Shou Ning
Producer: Moh Heng Ying
Podcast Transcription
Wong Shou Ning:
Good morning, you're tuned in to Ringgit and Sense, a show all about personal finance, and I'm Wong Shou Ning.
Budget 2024 was tabled last week, and although the government tiptoed over GST and petrol subsidies, we saw various new measures and taxes introduced. Some of them include the increase of service tax from the current 6% to 8% for certain sectors, luxury goods tax at between 5% to 10%, and the floating of prices of chicken and eggs. Joining me to discuss Budget 2024 and what tax incentives are available for you is Thanneermalai Somasundaram.
He's the Managing Director of Thannees Tax Consulting Services. Good morning, thank you for joining us. Now, really, we have to ask this takeaway question, which is what did you make of Budget 2024, entitled "Economic Reform, Empowering the People"? Was it true to its label?
Thanneermalai:
Well, thank you very much for inviting me first, Shou Ning.
And the budget is actually spot on. I think it is actually meeting the requirements of the current environment. We are in a difficult situation in the sense there are lots of conflicts going around the world, etc.
And in this, we are in a kind of a difficult situation, but you have to now find a way out of it. And I think this budget is focusing on that spot on: attacking corruption, trying to improve governance. That's number one.
Number two is subsidy rationalisation. About time—it's way, way overdue. And even that is only coming in next year.
I hope it'll actually work and it'll be implemented. Then the commitment to growth has to be maintained because the country still has to grow. So commitment to growth will be another key element here.
And then the last one is, of course, taking care of people who need help. So really, it has covered everything. People may not realise it, but actually the money—the RM303 billion that is going to be spent in the coming year—will be focused on the right issues.
So this is a budget that is spot on, in my opinion.
Wong Shou Ning:
Okay, so one of the priorities of this budget was, of course, to look at increasing our revenue base. And we do see that in the increase in service tax, but fortunately—or some would say unfortunately—it doesn't cover services such as F&B and telecommunication.
And I understand why, because you don't want an unnecessary burden on the rakyat, right? But the scope of taxable services is going to be expanded to include logistics, brokerage, underwriting, and interestingly, karaoke services. So which do you think will have the biggest direct impact on personal finance?
Thanneermalai:
I think it's simple: it's going to be logistics.
Because logistics is something that was not taxed. They were taxing it until December 2018, then they deferred it. Now it's come back.
So it is going to be—even though it is only at 6%, not at 8%—it is still going to flow through. Because when you have a manufacturer actually charging you sales tax, inevitably, he's going to absorb the service tax as well. Whatever it is, the logistics guy will charge the manufacturer, and the manufacturer will include that particular element.
And then what happens is, because SST is an opaque tax, you don't pass only the value added and eliminate the tax element at each part of the supply chain. Here, it'll keep adding. So what will happen is the logistics guy will charge the service tax, the manufacturer will add on, and he will add the profit on his value add plus the SST.
Then he will pass it on to the distributor. And then the distributor will actually use that total increased sum and tax it. So there's a tax on tax because this whole thing will cascade.
So inevitably, the logistics costs will come back finally to the consumer.
Wong Shou Ning:
Let me get this right. So in general, we can expect a rise in the cost of living.
I'm sure what you're basically saying is that there will invariably be a knock-on effect, isn't it?
Thanneermalai:
There will be a knock-on effect. But what they've also said—if you had followed BFM when you interviewed Dato' Marikan or someone—I think they mentioned that they're going to give the diesel subsidy.
Wong Shou Ning: Yes.
Thanneermalai:
There is going to be a diesel subsidy to the logistics companies. Although there's going to be a target, that's one of the targeted groups that will be assisted so that the price doesn't get passed on. So there's going to be some form of a subsidy given to the logistics guy.
So I think if the logistics companies are acting responsibly, they have to take that benefit into account. And also they've got to take this extra cost and not just pass on the one-sided cost. The net effect will be slightly less than the service tax that they incur.
Wong Shou Ning:
Should we have just gone ahead with GST then? From the sounds of it—because this service tax sounds complicated in its own way, right?—it's hard to determine really what the true increase from this taxation is.
Thanneermalai: You won't know. Like you say, it's opaque.
Wong Shou Ning:
Okay. So for the good of the nation, for the good of the rakyat in the pursuit of being transparent, would it have been better to look at GST?
Thanneermalai:
It would have been, actually. The businesses would not be incurring cost; they would be collectors only.
The input tax, output tax, and the exemption of the zero-rating mechanism will ensure they become collectors. There's no cost to the business. So the businesses have no reason to actually add on to the costs.
Finally, they collect only the tax due on the total value add. So that's where GST would be good. But I'll just add to that.
The main pushback on GST by everybody, including the politicians, has been that it is regressive, saying that the B40 and other people will be affected in terms of percentages. But that's not necessarily the case.
It's not. Why is it that every other country can use the zero-rating mechanism and the exemption mechanism to cushion or to protect the lower groups? It can be done. It is not impossible.
Remember, we already introduced it once and we were the only ones in the world who actually withdrew it. So we have got wonderful experience of actually introducing and withdrawing it. And now if we introduce it, we can be introducing it with the knowledge that we can avoid past mistakes.
Can we not? Sure, we can do it.
Wong Shou Ning:
But in the meantime, Prime Minister Dato’ Seri Anwar Ibrahim also proposed that the government will be introducing a 5% to 10% tax on luxury goods. I mean, we don't have the details.
But what kind of implementation will this—I mean, what's the type of implementation that's going to take place? And do you have any examples from regional peers?
Thanneermalai:
Oh, of course. I mean, there are countries—like Korea has it, China has it on certain elements. India has it on accommodation.
Indonesia has it on expensive residences. Even Australia has it on select luxury cars. Canada has it on luxury cars, yachts, etc.
So every country has—I've done this study across the world.
Wong Shou Ning: Will it actually fetch a significant amount of revenue?
Thanneermalai:
No. It's actually going to be a tax that I think is detrimental.
And I do not think this tax is really needed. But it's good from a visual point of view that you are actually getting the rich to pay. But frankly, the rich are not going to be actually buying those items that you think.
What is going to be affected? The people affected will be the ordinary person, particularly in the jewellery area. People don't buy it just to keep it on the wall. Actually, they do it, one, to use it for personal satisfaction. Number two, and most important, is they do it as savings.
And thirdly, many of us—because in Asian culture, we tend to give gifts for a child who is born or a marriage or something small—usually it's RM10,000, RM5,000, RM3,000, RM2,000—you tend to give gold because that becomes a store of value. So you tend to do that.
So if you now go and bring it in and say RM10,000 is your limit—and they haven't told us what the threshold is, we don't know the details—so if they bring in RM10,000 or if they bring in RM20,000, these are not large numbers. And if you now bring it in at RM200,000, you won't get many of the people, and all the rich, frankly, can just go—they fly so often.
They'll go to Singapore. They'll go elsewhere. They'll go to London, everywhere.
They'll buy these things. Whether you go to India or elsewhere, you buy it there. Why should I pay this service tax? And they're all very intelligent, very clever people.
The rich actually plan more. The poor don't plan; the poor buy.
And who is going to pay the tax? It's most likely the poor who buy maybe more than RM10,000, because the number bandied around that I'm hearing from people is probably RM10,000, and that's just too low. Way too low.
Wong Shou Ning:
Now, there's also going to be the mandatory implementation of e-invoicing for taxpayers with annual income or sales of more than RM100 million. It's going to start from 1st August onwards. Now, obviously, this applies to a very small percentage of the population.
But how will this change in tax filing impact them?
Thanneermalai:
Actually, it doesn't affect individuals at all. This is actually excellent. What is going to happen is this is actually going to bring all businesses into the tax net.
Because at the moment, we are not collecting. There are gaps in the system. What we can do is actually close that down. Because... I'll be frank with you.
It's not uncommon for people to buy invoices at the moment. It's not uncommon. And then they claim it as an expense.
All that will stop, because the person now issuing has to issue an e-invoice. So, you close the loop.
So, this is actually going to affect companies. First, on 1st August, it will be the RM100 million threshold—the businesses that are more than RM100 million.
Then the RM50 to RM100 million group. They've accelerated it from 2027 to 2025. This is one of the best steps.
This will bring in more money than your luxury tax.
Wong Shou Ning:
I want to talk about some of these green incentives. You know, this government is very into ESG and focusing on personal tax redemption.
What are the incentives for EV users or even anything along the lines where you want to be better, you want to be more environmentally conscious?
Thanneermalai:
Good. Let me tell you this. First of all, from an individual point of view, the only break you have, which was already available last year but is now going to be continued, is if you have a charging station in your house, then they will basically give you a deduction up to RM2,500, because that particular unit will cost you more than RM2,500.
With regards to the other one, remember, it's importation. You're not imposing—there's a customs duty reduction and there is a sales tax reduction on the importation of these EV units and vehicles. But the point—I mean, the problem we have—is what vehicles? Am I getting the Vios? Are we getting an EV at that 1.5 litre?
Majority of us are what? We're using 1.5, 1.8.
Wong Shou Ning:
There's no EV car that is below RM100,000. All of the cheapest is something like RM99,000, RM80,000.
Thanneermalai:
So who are we subsidising? Who are we subsidising? We are subsidising the T20 again—the Maseratis or maybe the BMWs, the Mercedeses and all. But not all of us use that. When we talk about the CKD kits and all that, it should now be focused. And this whole industry is going to change. At the moment we're using petrol and diesel; combustion is going to disappear entirely in five years and we're going to become electric.
So this is a flow-on effect. But for the individual so far, the ordinary person who is actually earning even RM15,000 a year who buys an ordinary car like a Civic or whatever else it is, or a Cross, he doesn't get that.
No benefit to him.
Wong Shou Ning:
Okay. And then we also saw an expansion in personal tax relief to cover the aspects of sports.
Help us understand what is eligible and how much is available, because there's some tweaking to that, isn't it?
Thanneermalai:
Yes, there is some tweaking to that. Actually, there's not much. The RM2,500 relief—what we call the lifestyle relief—previously was given on reading materials, personal computers, tablets, internet subscriptions, sports equipment, and gymnasium membership fees. And then an additional—that was RM2,500. Another RM500 was given for sports equipment, rental if you wanted to rent sports facilities like badminton courts, and registration for competitions.
Now what has happened is not very much. The RM2,500 remains, but it is confined to reading materials, personal computers, smartphones, tablets, internet subscriptions, and self-skill enhancement. So, RM2,500.
But they've introduced a new relief on top of all these reliefs. Now we have another relief for RM1,000. So, the RM500 has become RM1,000 for sports equipment, entry into—which means hiring badminton courts, tennis courts, and everything else—and registration for participating in sports events. Gymnasium is new; gymnasium membership fee is new.
Sporting training.
That's it. So, from RM2,500 and RM3,000—and remember, two and a half plus RM500 was RM3,000—now you get another RM500 extra.
So, RM3,500 is what you get from the Year of Assessment 2024, which is from January. That's the only difference. The other thing that has come in is also Yayasans and all—I may as well cover that—the exempt, charitable bodies.
Wong Shou Ning: These are certified, provided they are certified institutions.
Thanneermalai:
Right. So now what they have said is, if those exempted bodies under Section 44(6)—we call it charitable things that actually promote various purposes—one of them now includes sports.
If you are actually providing sports education or sports development, those Yayasans will be allowed—you can now apply for exemption status, and the donors can contribute up to 10% of their total income. So, the donors can now contribute.
Wong Shou Ning:
Are there any other lifestyle-related tax exemptions that we should be aware of?
Thanneermalai:
Lifestyle? Not really. This is the lifestyle relief. Otherwise, it's personal relief, and most of it is actually around healthcare.
Wong Shou Ning:
Yes, I noticed there have been some changes, right, including dental now being part of it.
Thanneermalai:
Yes. They introduced fertility treatment a few years ago; now they've introduced dental treatment.
Wong Shou Ning: But the quantum has not been raised.
Thanneermalai:
No, the quantum has not been raised. The only one that has been raised—I mean, not really—is parental care. They now have just said that within that limit—the limit that they had given for your parental care—the RM1,000 component of it can be used for your parents, who may be healthy but who want to go for medical check-ups. So, up to RM1,000 you can spend on your parents to do a health check-up.
That's the only thing that you can do. Nothing very much. Everything else was previously available and was merely being extended.
Wong Shou Ning:
Yeah, and one extension I saw was the Tax Relief for Skill Improvement and Personal Development courses. That's being extended to 2026. This might sound like a bit of an odd question, but how do we know what courses are eligible? Do we go to the IRB website, or is it for the institution to tell us?
Thanneermalai:
No, you've got to go to the Ministry of Human Resources.
You've got to go to the Department of Skills Development and check it up.
Not IRB. IRB will be the wrong place. They might send you up the wrong skill.
I'm just joking.
Wong Shou Ning:
You'll be good at auditing. What about the repayment of PTPTN? Yes, the loans.
Effectively, it's simple student loans. They're going to give a 10% discount if you pay 50% of the money upfront and then pay in instalments. They'll give you 15% if you have a direct debit or if you regularly agree to pay.
Well, something is better than nothing, because otherwise these funds never come back. So, it's a great incentive. I would actually encourage people to pay back.
But there must be a moral response. It's a question of morality here. You have borrowed.
Should you not give back the money so that other people can enjoy it? If you don't pay back, the next generation or the next group cannot enjoy it. No chance for them, and the government cannot keep on. You remember those days were good days when we had oil flowing and everything else.
Now, everything has reduced. We have a problem. So, please be responsible and repay your money.
Wong Shou Ning:
That's a very useful PSA. Now, are there any other tax incentives that we haven't touched on, or is that pretty much it in terms of the goodies for ordinary Malaysians?
Thanneermalai:
No, for ordinary Malaysians, it is very much just an extension of what was previously given. The only thing that has been increased—a very small amount from RM2,400 to RM3,000—is the childcare allowance that the employer pays to the childcare institution, or if the person concerned is actually incurring it, then they give them an allowance of RM3,000, which will not be taxable on the individual.
Wong Shou Ning:
The other thing is, in Malaysia, our tax-to-GDP ratio is something like 11.8%. It's very low compared to our ASEAN neighbours. Some would say there's this great reluctance to pay tax, but it's actually a civic duty.
Yet when we look at the Auditor General's report that came out recently, it's a sad state of affairs. Should we at the same time take to task those who misuse and waste our hard-earned tax dollars to encourage everyone to say, "No, this money is used for the right purpose in the right way"?
Thanneermalai:
I think accountability is very, very important. Transparency by the government using this money—they should be able to account for it.
It shouldn't be given to sectors where there are people who are rent-seekers in this economy who act as middlemen who don't contribute, but take a layer of everything. So we want to see that the money is spent properly. On the other hand, I think there's so much scope for Customs and IRB to tighten vigilance and collect money.
But that would mean going after the same people. Another big area is people who have not bothered or people who are using corruption to infiltrate the system. Unfortunately, people will deny it, but it does exist. At the end of the day, they should have zero corruption. There shouldn't even be talk about possible corruption.
Secondly, the authorities should go after that zone in no man's land at the moment who are not paying taxes and think they can get away with it. One is the rich and powerful. I don't want to name them, but there are segments of society we all know.
They talk, but they don't walk the talk. The second group are those who say, "IRB and Customs don't have the resources. They'll audit me once in seven years or five years, and I'll get a discount."
We have a discount mentality because, like traffic summonses and everything else, we give discounts, and now we're giving SVDP. So once in three, four, or five years, we give some kind of amnesty. That's another group—a hardcore group who says, "You come and catch me, lah." There are billions involved.
I'm talking about tens of billions. A professor from UKM mentioned a number on paper of about RM40 billion, which is too high in my opinion.
But it could possibly be RM10 to RM20 billion. I used to be the president of the Chartered Tax Institute, and we did a study and estimated it could well be around RM20 billion. But you have to go after them.
Wong Shou Ning:
For those who are filing their income tax diligently, practical advice: keep all your receipts.
Thanneermalai:
You keep all your receipts, and they can come anytime—five years if it's income tax, seven if it's transfer pricing. The most important thing is that the authorities, the government, and people like us who have been paying taxes all these years feel aggrieved when every three or five years we end up giving an amnesty. It is wrong. Amnesties should stop.
This should be the last amnesty given to people who have not complied. Only then will people like us feel that we have done the right thing. Otherwise, we feel aggrieved.
Why should I pay when these guys are getting a discount?