Budget 2015: How It Affects You

budget how it affects you

Prime Minister Datuk Seri Najib Tun Razak just tabled the Budget 2015. Earlier, he had hinted on his blog, NajibRazak.com that the much anticipated budget will be “pro-rakyat” to alleviate concerns about the rising cost of living and to ensure that the country achieves a balanced budget by 2020.

Here are some key highlights from the budget and how it’ll affect your wallet!

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New exemptions for Goods and Services Tax (GST)

GST has been the hot topic for many Malaysians since it was announced in last year’s budget. It will be implemented effective April 1, 2015 at 6% to cover a broader spectrum of goods and services, and it’ll replace the Sales and Services Tax (SST). Fresh food, public transport, education fees and healthcare are currently exempted.

In Budget 2015, the Government has widened the scope of items that will not be subjected to GST to lessen the burden on consumers. Food items include local and imported fruits, white and wholemeal bread, coffee powder, tea dust and cocoa powder, and yellow mee, kuey teow, laksa and meehoon, to name a few. So hypothetically, your cup of teh tarik and roti bakar should still cost the same next year.

Other items include text books, dictionaries, and medicines. Medicines include the National Essential Medicine, which covers almost 2,900 brands which are used to treat 30 types of diseases including heart failure, diabetes, hypertension, cancer and fertility treatment.

Though fuel subsidy will be gradually decreased, it is a relief to see RON95 petrol, diesel and LPG cooking gas included in the new GST exemption list.

In addition, electricity consumption that is not subject to GST will be increased from the first 200 units to 300 units. This will benefit 70% of households. Though this is good news, the extra 100 unit exemption in reality only saves you no more than RM5 a month.

Without proper anti-profiteering structure in place, though these items may be exempted, they may still not escape price hike.

New income tax rates

With the upcoming GST in place, the Government will be able to reduce the tax burden on the rakyat. Personal income tax rates will be reduced by 1% to 3%. This reduction will see 300,000 individual taxpayers exempted from income tax. In addition to this, now families earning RM4,000 per month or less will be exempted from paying tax.

The maximum rate for income tax will also be increased from exceeding RM100,000 to exceeding RM400,000 with the tax rate for those earning more than RM100,000 annually which is currently at 26% will be reduced to 24%, 24.5% and 25%.This will result in the existing taxpayers enjoying a tax saving of at least 5.3%.

Corporate income tax will also be reduced by 1% to 2%. Secretary and tax filing fees will be allowed as deductions.

In 2016, corporate income tax will be reduced by 1% from 25% to 24%, while income tax for SMEs will be reduced by 1% from 20% to 19%.

By making use of all the tax reliefs and the new rates, tax payers will see a bigger tax savings on their income tax.

Youth Housing Scheme 

The biggest complaint in recent years is the exorbitant property prices. Most people, especially those living in the Klang Valley can no longer afford to buy their first home. Understanding the rakyat’s predicament, the Youth Housing Scheme (YHS) was announced in Budget 2015.

This scheme is a partnership between the Government, Bank Simpanan Nasional, Employees Provident Fund and Cagamas, to help youth between the age of 25 and 40 years to afford their first property.

The scheme offers a funding limit for a first home not exceeding RM500,000 for married youth aged between 25 and 40 years with household income not exceeding RM10,000. The maximum loan period is 35 years.

Under YHS, the Government will provide monthly financial assistance of RM200 to borrowers for the first two years. The Government will also give a 50% stamp duty exemption on the instrument of transfer agreements and loan agreements.

In addition, the government will provide a 10% loan guarantee to help borrowers obtain full financing, including the cost of insurance.

Those who are eligible for YHS would need to hurry, though, as there are only 20,000 units available on a “first come, first served” basis.

However, based on our calculations, the saving is not that significant (8.5% savings on the monthly loan payment). The problem that most Malaysians face is not that they lack the ability to pay RM200 a month, but finding a property that they want priced below RM500,000. Though, it is still a small step in the right direction.

For a RM500,000 property with 4.45% interest, 100% margin of finance for 35 years, your home loan monthly repayment will come up to RM2,351. With RM200 financial assistance from the Government, the first two years, you will only need to pay RM2,151. That’s RM4,800 savings in total.

It may not sound like much, but RM4,800 for 20,000 units amounts to the Government allocating RM96 million for this scheme. This does not include the additional 10%  loan guarantee. The guarantee allows you to get 100% financing for a home. Without forking out that RM50,000 in cash for a down payment, it allows for property ownership much earlier on for people who qualify.

The savings will come in handy because even though housing is exempted from GST, the construction costs are not, and developers will no doubt pass some of the price hikes to the buyers. This will inadvertently affect the property market as a whole.

BR1M increased

Taking into consideration revenue collection from GST and also the rising cost of living, the Government will increase BR1M from RM650 to RM950 for households with a monthly income of RM3,000 and below.

For those earning between RM3,000 and RM4,000 a month, the Government will increase BR1M from RM450 to RM750.

Payment for both categories above will be made in three instalments – January, May and September.

For single individuals each 21 and above and with monthly earnings not exceeding RM2,000, BR1M will be increased from RM300 to RM350 in a one-off payment early next year.

The increment in BR1M for all three groups are welcome especially with the new quantum of distribution, which will prevent misuse of the funds. However, the question remains: is RM950 is enough to cover the additional expenses that come with the implementation of GST, increased fuel price and also increase in home loan repayments?

Though Budget 2015 is supposed to address the people’s concern on high cost of living, the programmes announced do not differ much from Budget 2014. Whether the implementation of these programmes will be effective remains to be seen. However, the lower income tax will definitely help us tackle the price hike that will come with GST. With the YHS, owning their first home is no longer a distant dream.

Budget 2015 is still a populist budget though it is not perfect. However, it is a step towards the right direction in elevating the country to be a high-income nation.

For more information on Budget 2015, check out our budget section here.

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