Malaysia wants to raise its tax revenue in 2025 by cutting subsidies for the wealthiest but is now faced with the question of who exactly qualifies as its top 15 per cent (T15) of earners, or the so-called mahakaya (ultra rich) who will bear the biggest burden from the impending cuts for petrol and education subsidies.
Prime Minister Anwar Ibrahim, in presenting the budget on Oct 18, did not define the T15 group clearly, while explicitly calling them “mahakaya” .
Since taking office in November 2022, Anwar has framed subsidy cuts as removing a luxury from wealthy elites while maintaining a necessity for the poor. He continues to do so in rolling out the latest budget, with plans to cut back on subsidies and social assistance by excluding top earners from these benefits.
“The fact remains that foreign nationals and the wealthiest 15 per cent of consumers are enjoying 40 per cent of the RON95 petrol subsidy, valued at RM8 billion (S$2.4 billion). This RM8 billion is better directed towards improving public services such as education, healthcare and transportation,” Anwar said in parliament while unveiling Malaysia’s largest budget to date of RM421 billion.
Based on Malaysia’s latest official income survey in 2022, the T15 are households with combined monthly incomes of at least RM13,500 – who are often left with little disposable income after paying for housing, food, transport and raising children.
Experts and opposition politicians argue that this T15 income threshold risks burdening a huge swathe of the middle class, and that the classification should take into account other factors such as household size and locality.
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Around 1.1 million households with roughly 4.3 million individuals in Malaysia fall under the T15 category, estimates Malaysian Institute of Economic Research executive director Anthony Dass. Malaysia has a population of around 34 million.
The government has, since 2014, defined family income in terms of three broad categories to help in framing policies and disbursing aid. There is the top 20 per cent, or T20, with monthly household income of RM11,820 and above; the middle 40 per cent, or M40 (RM5,250 to RM11,819); and the bottom 40 per cent, or B40 (below RM5,250).
Analysts say Anwar’s new approach could ignite societal divisions, particularly in schools, as it withdraws subsidies for the so-called wealthy. This policy is seen as potentially damaging to national unity as it might create perceived class distinctions within the community, they note.
“This is bad for social cohesion and unity. And the usage of the word subsidy for healthcare and education is wrong, as it is a constitutional right of citizens to enjoy these services,” said Dr Muhammed Abdul Khalid, a research fellow at the Institute of Malaysian and International Studies at Universiti Kebangsaan Malaysia.
The country’s larger urban households with higher incomes will be the hardest hit by this shift to penalise the mahakaya, experts say.
Among them is Hafidz Rahmat, a 45-year-old business manager who supports a household of six.
“With the withdrawal of subsidies of petrol and education, it would increase monthly fuel costs by an estimated RM1,000 to RM2000 a month, which could increase my spending by more than RM20,000 a year. It feels like a punishment to the demographic that contributes 80 per cent of income taxes,” Hafidz told The Straits Times.
The T15 income group contributed the most to government coffers, accounting for 80 per cent of income tax revenue in 2022.
Dr Muhammed, who is an economist by training, said that on a national level, the T15 are considered middle-class in capital city Kuala Lumpur, which has a high cost of living.
“The minimum monthly household income of RM13,500, or about RM6,750 each if both husband and wife are working – is that super rich? Clearly not,” he told ST.
Keeping to his pledge to tax high-income earners, Anwar said on Oct 18 that the government will cut fuel subsidies for RON 95, a heavily subsidised petrol, by the middle of 2025. He will also gradually reduce education subsidies for the well-heeled, including those for prestigious government-backed boarding schools.
While acknowledging that Malaysia has the lowest tax revenue compared with its regional peers, Anwar noted that the government is looking at increasing the tax revenue by expanding the scope of the country’s sales and service tax, starting in May next year.
The new budget also includes plans to introduce a progressive tax of 2 per cent on dividend payouts exceeding RM100,000, starting in 2025.
The government is also looking to remove healthcare subsidies for top-earning Malaysians, but has not defined the income brackets of those who will be affected.
Boosting tax revenue is good but the details could be refined and explained better, economists say.
Syed Sabri said it is unfair to withdraw subsidies based solely on income levels, as those who earn more also pay higher taxes.
“If the government is willing to cut our (income) taxes, I don’t mind paying for unsubsidised petrol, and education for my daughters,” said the 48-year-old financial controller who has two young children.
The heated debate over the T15 issue led Economy Minister Rafizi Ramli to say that the income threshold is being closely looked at by the government, and will take into account factors such as locality since it costs more to live in urban than in rural areas.
“Once that’s finalised, we can then set the statistical lines (for population groups) such as B40 and T15,” he told reporters on Oct 20.
If the government proceeds with cutting subsidies for high-income earners, Dass recommends that the income threshold for T15 households be revised to closer to RM20,000 per month, which would put families in a better position to manage the additional financial burden of increased costs. THE STRAITS TIMES
