Budget 2027: How much tax could Malaysians save under the proposed new rates? We did the maths for you

From assessment year 2027, Malaysia proposes cutting the rate for chargeable income from RM70,001 to RM100,000 from 19 per cent to 18 per cent. The RM100,001 to RM150,000 band would fall from 25 per cent to 24 per cent. These changes target middle-income taxpayers by reducing the tax charged on those portions of income.

The automatic individual tax relief would rise from RM9,000 to RM12,000. This gives every eligible taxpayer an additional RM3,000 deduction from chargeable income before tax is calculated. The proposal also moves the 30 per cent rate to chargeable income above RM1 million, instead of above RM2 million.

The changes are proposed for income earned in 2027 and later years. The government expects lower rates and higher relief to increase disposable income for about five million taxpayers, while the earlier 30 per cent threshold would increase the contribution from higher-income taxpayers.

Total income is the full income a person receives during the year. Chargeable income is smaller because tax reliefs are deducted from that total first. The remaining amount determines which tax bands apply and how much tax is payable. This distinction matters because reliefs can directly reduce the taxable base.

For example, the article uses a hypothetical chargeable income of RM100,000 under the RM9,000 relief. If the automatic relief rises to RM12,000, the chargeable income becomes RM97,000. Tax is then calculated on the portions within the relevant bands, including the proposed 18 per cent rate for the RM70,001-RM100,000 band.

Chargeable income is therefore not the same as salary or total income. Other available reliefs could reduce it further. The article notes that its examples exclude those additional claims, so a person’s final tax bill could be lower than the illustrations.

The proposed lower tax rates could save RM300 for someone with RM100,000 in chargeable income. At RM150,000, the potential saving rises to RM800. These figures compare the proposed rates with the current rates and reflect Malaysia’s progressive system, where only the relevant income portions receive the reduced rates.

The automatic relief adds another saving. In the article’s examples, reducing chargeable income from RM100,000 to RM97,000 produces RM840 less tax. Reducing RM150,000 to RM147,000 produces RM1,520 less tax. These examples combine the RM3,000 increase in relief with the proposed rate reductions.

Prime Minister Datuk Seri Anwar Ibrahim said the combined effect could provide up to RM1,600 in additional disposable income to approximately five million taxpayers. The examples are illustrative and do not include every other relief a taxpayer might claim, so actual savings may differ.

Malaysia’s progressive tax system divides chargeable income into bands. Each band has its own rate, and the tax bill is built by adding the tax from every band reached. This means a higher rate does not apply to the entire chargeable income once someone enters a higher band.

For example, the proposed rate for the RM70,001-RM100,000 band is 18 per cent. If chargeable income reaches RM100,000, the lower portions are taxed using their earlier band rates, while only the portion within RM70,001 to RM100,000 uses 18 per cent. The same approach applies to the RM100,001-RM150,000 band, proposed at 24 per cent.

This structure explains why the article describes savings at RM100,000 and RM150,000 rather than applying a single percentage to those totals. It also means the proposed 30 per cent rate above RM1 million affects only the amount beyond that threshold.

The proposal brings the 30 per cent personal income-tax rate forward. It would begin when chargeable income exceeds RM1 million, instead of applying only when chargeable income exceeds RM2 million. This shifts more of the tax burden toward people with higher chargeable incomes.

For someone with RM2 million in chargeable income, the article estimates an additional tax bill of RM19,200. The reason is that part of the income that currently avoids the 30 per cent rate would fall within that higher-rate band under the proposal. The progressive system still applies, so the rate is not imposed on every ringgit.

Deloitte Malaysia tax leader Sim Kwang Gek said the change appears intended to partly offset revenue lost from lower middle-income rates. It also ensures higher-income taxpayers contribute more to overall government tax revenue. The change is proposed from assessment year 2027.

Malaysia proposes raising automatic individual tax relief from RM9,000 to RM12,000 for assessment year 2027 onward. The increase gives taxpayers an additional RM3,000 deduction before their chargeable income is calculated. That can lower the amount exposed to the progressive tax rates.

The article gives an example at RM100,000. If that chargeable income was based on RM9,000 relief, the higher RM12,000 relief would reduce it to RM97,000. Combined with the proposed lower rate, the example produces RM840 less tax. At RM150,000, the comparable example produces RM1,520 less tax.

The article says this is the first increase since 2010. The policy is designed to provide more disposable income, especially when combined with the lower middle-income rates. It is expected to apply to income earned in 2027 and subsequent years, if implemented as proposed.

Tax reliefs reduce the income on which tax is calculated. After the automatic relief is deducted, approved expenses, dependant-related reliefs, or other eligible claims could reduce chargeable income further. A smaller chargeable amount may mean less income is taxed within the higher bands.

For instance, the article’s RM100,000 example becomes RM97,000 after the automatic relief rises from RM9,000 to RM12,000. If additional reliefs were also available, chargeable income could fall below RM97,000. The final saving would depend on the amount claimed and the tax bands affected, rather than simply subtracting that amount from the tax bill.

The article does not list specific approved-expense or dependant categories. It clearly states that its calculations are before factoring in other reliefs. Therefore, the RM840 and RM1,520 examples are not necessarily final tax savings; a taxpayer’s actual bill could be even lower.