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Tackling income disparities in Malaysia

Only 0.2% of the total 22m adults living in the country are in the over US$1m wealth band

by MARK RAO/ pic by BERNAMA

THE disparity in income being observed globally is expected to decline in the near future and Malaysia, which sees only 43,646 adults in the over US$1 million (RM4.19 million) wealth bracket, is making small, but positive strides towards reducing the divide.

According to Credit Suisse Research Institute’s latest global wealth report 2019, global wealth grew 2.6% over the past year to US$360 trillion, lead by the US, China and Europe, while wealth per adult reached a record of US$70,850.

But income inequality remains a concern for most parts of the world, the report highlighting the bottom-half of wealth holders collectively accounted for less than 1% of total global wealth in mid-2019.

Malaysia is no exception as the report found that only 0.2% of the total 21.82 million adults living in the country are in the over US$1 million wealth band. This was in spite of total wealth in the country growing 14% year-on-year to US$682 billion to comprise 0.2% of the world’s total wealth.

The majority of the adult population in Malaysia, 96.1% or 20.97 million people, were categorised as having wealth at or below US$100,000.

Despite the vast majority of Malaysians being excluded from the top wealth bracket, Malaysia’s Gini index reading — which measures the distribution of income in a given population — improved from 82% in 2018 to 79.6% this year.

Malaysia’s Gini index or coefficient is also lower than the world average of 88.5% and Asia-Pacific’s 88% in 2019.

The country has announced a slew of initiatives in Budget 2020 with the aim of promoting growth and putting more cash in the hands of consumers.

These included tax incentives, petrol subsidies, expanding the reach of the Bantuan Sara Hidup (BSH) scheme and measures to improve home ownership in the country.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid (picture) said transfer programmes such as BSH and targeted fuel subsidies, as well as the increase in the minimum wage, are aimed at alleviating the financial burden facing the low-income group.

He said the increased tax rate for higher income individuals, namely those earning more than RM2 million a year, is aimed at reducing the income gap in Malaysia.

“Although the expected collection from this group is around RM100 million, it signals the government’s commitment to address the income inequality which has been plaguing the economy,” he told The Malaysian Reserve (TMR).

The tax rate increase from 28% to 30% for income in excess of RM2 million is estimated to impact about 2,000 top income earners in the country, while generating RM100 million in additional tax revenue for the country.

Malaysia will also allocate RM2.2 billion for the targeted petrol subsidy programme to benefit some eight million motorists consisting of both BSH recipients and those in the middle-income group.

A total RM5 billion has been committed to expand the BSH programme to include single Malaysians aged 40 and above earning less than RM2,000 a month, as well as disabled persons aged 18 and above with RM2,000 in monthly income.

Effective next year, the minimum wage for employees will be raised to RM1,200 per month — though this will be limited to those residing in major cities — in a move to mitigate the higher cost of living observed in prominent urban centres nationwide.

Wong Wai Ken, Malaysia country manager for robo-advisor StashAway, said several of the initiatives announced during the budget were also beneficial to the middle and upper-income groups.

“For (these) groups, it was as much about what taxes were not introduced, such as the Capital Gains Tax and Inheritance Tax, which is a real positive as these segments can stay the course on their financial plans and not have to restructure their holdings,” Wong told TMR.

He said the rebasing of the Real Property Gains Tax (RPGT) will also translate into a lower tax bill for property investors.

The base year for the RPGT, which is a tax imposed on the profit earned when a homeowner or business sells a given property, will be revised to Jan 1, 2013, from the previous Jan 1, 2000. This will translate into lower tax payments incurred as property assets appreciate in value over the years.

What was noteworthy in the Swiss bank’s 2019 global wealth report was the fact that China overtook the US in terms of having the most people in the top 10% of the global wealth distribution.

Several emerging countries such as India also registered notable gains in wealth, indicating that we could see more wealth creation in developing economies in the years ahead.

What remains to be seen if this increase in wealth will also be followed by more equitable wealth distribution.

Zukri

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