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Malaysia tax rate ranks 2nd lowest in region

Malaysia maintained its top rate of personal income tax at 26 percent in 2010, which was the second lowest rate compared with five other countries in Southeast Asia, according to KPMG's annual Individual Income Tax and Social Security Rate survey.

“The rate was reduced from 28 percent to 27 percent in 2009 and further reduced to 26 percent in 2010,” said the audit firm in a recent statement.

“Although it was recently announced that the tax rates affecting three chargeable income bands ranging from 2,501 ringgit (US$819.73) to 50,000 ringgit will be reduced by 1 percent, this will have minimal impact on an eligible individual taxpayer as the tax reduction only amounts to 475 ringgit,” KPMG said.

Singapore maintained the lowest rate in the region, followed by Indonesia, Philippines, Vietnam and Thailand.

In the same statement, KPMG international executive services head Datin Pauline Tam said there could be a possibility that the 26-ringgit top tax rate in Malaysia would be reduced when the government introduced the goods and services tax.

“It will be good if the Government could give a firm commitment to its reduction as this will be very welcome to businesses and entrepreneurs. Being open for business is not just about the corporate tax regime.

“Personal tax is a major issue for entrepreneurs, high net worth individuals and senior executives, many of whom can and do exercise considerable discretion over where they choose to locate.”

Tam however added that“headline top rates of tax don't tell the whole story.”

“For example, here in Malaysia, while the top rate of personal income tax is 26 percent, on earnings of US$100,000, a single individual's effective tax rate is 21 percent. When comparing rates in different countries, it's important to consider the threshold at which the rate kicks in and the effect of social security taxes which may be levied.

“Indeed, the survey shows that when considering the combined effective social security and income tax rate levied on a salary of US$100,000 and US$300,000 respectively in a range of six countries in South-East Asia, Malaysia is lower than countries such as Indonesia, Thailand, Vietnam and the Philippines.”

The survey of personal tax and social security rates with historical data from 2003-2012, covers 114 countries and concentrates on the highest level of personal tax payable to the central government.

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