Lifestyle Tax Relief: The Good, The Bad & The Ugly

Lifestyle Tax Relief: The Good, The Bad & The Ugly

When middle-class Malaysians have more money in their pockets to save, invest, and grow the economy, the country benefits. Other than the government’s continuous effort in boosting the lower-income group, also known as the Bottom 40 (B40), the last few federal budgets had also seen cuts in income tax rates.

However, in his Budget 2017 speech, Prime Minister Datuk Seri Najib Razak did not announce any change to personal income tax rates. Instead, he announced a few tax reliefs, including the new lifestyle tax relief. The new lifestyle tax is not exactly new. It combines a few tax reliefs into one, allowing taxpayers to claim yearly. It is a combination of the tax relief for reading materials (up to RM1,000 a year), computer (up to RM3,000 every three years), and sports equipment (up to RM300 a year).

Effective for year of assessment 2017 (tax filed in 2018), the lifestyle tax relief at a limit of RM2,500 yearly, also includes new categories such as the purchase of printed newspapers, smartphones and tablets, internet subscriptions as well as gymnasium membership fees.

The good thing about the new relief is, it offers more flexibility because it allows a slightly larger group of taxpayers to benefit from it.

“For year of assessment 2016 and before, only individuals with a monthly income of RM3,800 and above would have enough chargeable income to utilise the RM1,300 or RM4,300 tax relief. Starting from year of assessment 2017, the lifestyle tax relief includes individual with a monthly income of RM3,600 and above,” said Choong Hui Yan, a tax consultant from SIMways Formulation.

But is the new tax relief really great news for taxpayers?

So, what is the difference between the lifestyle tax relief and previous reliefs?

YA 2016
YA 2017 onwards
Purchase of books, journals, magazines and publications
Up to RM1,000 (every year)
Up to RM2,500
(every year)
+
Printed newspaper, smartphone,
tablet, internet subscription &
gym membership
Purchase of personal computer
Up to RM3,000 (every 3 years)
Purchase of sport equipment for sport activities
Up to RM300 (every year)
Total maximum reliefs
Up to RM6,900 over 3 years
Up to RM7,500 over 3 years

The total relief you get over the same period of three years is higher by RM600. Sounds good.

But does that mean lower taxes? Here’s a comparison of the difference it makes in the tax payable for years of assessment 2016 and 2017.

YA 2016 & prior
YA 2017 onwards
Annual income
RM48,000
RM48,000
Personal & family relief
RM9,000
RM9,000
EPF & insurance relief
RM5,280
RM5,280
Computer relief (every 3 years)
RM3,000
RM2,500*
Reading materials relief
RM1,000
Sports equipment relief
RM300
Total chargeable income
With purchase of
computer:
RM29,420
Without purchase of
computer:
RM32,420
RM31,220
Total tax you will have to pay
With purchase of
computer:
RM621
Without purchase of
computer:
RM771
Total over 3 years
= RM621 + RM771 + RM771
= RM2,163
RM711 a year
TOTAL over 3 years
= RM2,133
* Assumming that the individual taxpayer maximise the lifestyle tax relief fully with the added categories.

 

Based on the example above, you will pay a lower tax on the year that you claim for the computer tax relief in YA 2016 and prior, but you will see a higher tax in the two other years that you are not claiming for computer.

On the other hand, because of the wider categories in the new lifestyle tax relief, it is much easier to maximise the amount every year. In this case, you will see a savings of RM30 over three years.

According to Jagdev Singh, tax leader from PricewaterhouseCoopers (PwC), the actual increase in tax relief is marginal.

“It would have been nice to see a higher limit of say RM5,000,” he added.

How do taxpayers feel about it?

The new lifestyle tax relief does offer more flexibility because it includes more items. It also reintroduces relief for internet subscription which was discontinued in 2013.

This means, for those who don’t take full advantage of reliefs such as reading materials, they can now make use of the reliefs in other ways.

The drawback  is, for those who actually spend their money on all the categories, the limit of RM2,500 really doesn’t make a big impact on savings. Many taxpayers feel that the amount is too low.

Shamalah Watumalai, 38, who heads the device subsidy and services division at a reputable telco in Malaysia, said that although she welcomes the inclusion of internet subscription, smartphone and tablet in the lifestyle relief, the amount given does not even cover her yearly broadband subscription.

“I spend RM250 a month on broadband, and I typically max out the RM1,000 relief on reading materials,” said Shamalah, adding that for the relief to be meaningful, the amount should be higher.

SHAMALAH WATUMALAI, 38, head of device subsidy & services
Annual spending
Internet subscription (RM250/month)
RM3,000
Reading materials
RM1,000 to RM1,500
Computer
RM2,000 (2014)
Smartphone
RM5,000 (2016)
Total tax relief for these categories
YA 2016
YA 2017
 
RM1,000
RM2,500
like

Another taxpayer, Carmen Lee, a senior real estate negotiator, shares the same sentiment.

“For someone who spends on almost all the categories, the lifestyle tax relief is bad news for me,” said Lee.

CARMEN LEE, 24, senior real estate negotiator
Annual spending
Internet subscription (RM150/month)
RM1,800
Reading materials
RM600
Computer
RM2,400 (2016)
Tablet
RM2,500 (2016)
Gym membership (RM160/month)
RM1,920

In 2016 alone, Lee has spent RM9,220 in these categories. Even without including the new categories, Lee will be able to get relief of RM3,000 (RM2,400 + RM600) based on the current separated tax reliefs. However, with the new lifestyle relief, she would have gotten only RM2,500 in tax relief, despite the added categories.

Total tax relief for these categories
YA 2016
YA 2017
 
RM3,000
RM2,500
dislike

The combined tax relief sounds like a good idea, but it doesn’t really encourage one to adopt a digital lifestyle, while still live an active life.

For example, Hernando Taniko, 25, digital marketing/SEO executive, spends about the same amount on both broadband subscription and gym membership.

“With the RM2,500 limit, I can only claim relief on one of these two major expenses. I’m glad I’ve bought my computer before the new relief is implemented,” said Taniko.

HERNANDO TANIKO, 25, digital marketing/SEO executive
Annual spending
Internet subscription (RM189.75 /month)
RM2,277
Computer
RM3,000 (2015)
Smartphone
RM1,200 (2016)
Gym membership (RM171/month)
RM2,052

However, Taniko still stands to gain from the new lifestyle relief, as he usually does not utilise the reading materials and sports equipment tax reliefs. Now he can use the relief for other spending, albeit not all his spending in the categories.

Total tax relief for these categories
YA 2016
YA 2017
 
RM0
RM2,500
like

Like the rest of them, Wong Yin Keet, 31,  thinks the lifestyle tax relief is disguised as good news, but taxpayers are actually losing out.

This is especially true for those who utilise expensive categories, such as broadband subscription, gym membership, computer, smartphone or tablet.

“Items like broadband subscription and gym membership are not likely to reduce in price. If you have these two constant expenses, you will probably never get to claim for purchase of computer, smartphone or tablet,” said Wong.

WONG YIN KEET, 31, mobile developer
Annual spending
Internet subscription (RM199/month)
RM2,388
Computer
RM3,500 (2013)
Tablet
RM700 (2016)
Sports equipment
RM200

However, for Wong, who did not utilise the relief for reading materials and computer, he can make use of the RM2,500 relief for other categories when he files for income tax in 2018.

Total tax relief for these categories
YA 2016
YA 2017
 
RM200
RM2,500
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How can the lifestyle tax relief be better?

Though the lifestyle tax relief on the surface looks great for taxpayers with additional RM600 tax relief over three years, after delving deeper into it, we found that due to the low limit of RM2,500, the actual impact on chargeable income is pretty much negligible.

There are more categories to claim for, but at the end of the day, one can’t claim for all of them. The relief limit should also take into consideration the current cost of these items.

“Those who purchase a computer, smartphone or a tablet in any year of assessment would lose their annual expenses incurred on books, newspaper, sports equipment, gym or internet subscription,” Choong added.

If you are planning to purchase a computer, it will be best to make the purchase before the end of the year to still make use of the separated relief of up to RM3,000.

For the relief to make a meaningful impact on the taxpayers’ bottom line, the relief should separate the categories for computers, laptops, smartphones and tablet from the relief on books, newspaper, sports equipment, gym and internet.

For now, based on the RM2,500 limit, it seems taxpayers will be forced to choose one or the other.

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