Possible tax on petrol rebate

It is interesting to see how the headlines read on the petrol rebate given out since the latest fuel price hike on June 5, 2008:

June 8, NST- Fuel price hike: 'Rebate will help ease fuel price hike pain' A person who drives a small car and travels not more than 50km a day would not be burdened by the higher petrol prices. This is because the RM625 cash back rebate would cover the higher costs incurred.

June 9, The Star- All will get cash rebate, says Shahrir KUALA LUMPUR: Motorists who renewed their road tax before April 1 and therefore fail to qualify for the cash rebate need not fret. Their next road tax renewal would qualify them for it.

June 13, The Star- Rebate in three minutes The process of getting fuel subsidy rebates will be simple and will only take three minutes, Pos Malaysia Bhd said.

July 10, The Star- IRB to decide whether RM625 rebate is taxable The Government has yet to decide whether to tax the RM625 rebate a year given to owners of vehicles with engine capacity of up to 2,500cc.

The IRB chief goes on to say that the rebate may push borderline taxpayers into the higher bracket- of course it will. It will also push non-taxpayers into the taxpayer bracket as well. Whether the tax rebate is taxable or not depends on how the IRB wants to interpret Section 4 of the Income Tax Act 1967. Section 4 has a wide scope, but if one understands it word for word, the RM625 is a clear cut non-taxable item. Just amend Section 6A (section on Tax Rebates) to include this RM625 in this Section and that's it. Additionally, the type of rebates in Section 6a for personal tax payers is pretty small- Eg. An RM400 rebate for personal computer purchase not related to business purposes; rebates for religious dues and rebates related to the RM35,000 tax band.

6.4 million is the number of registered tax payers; 1.14 million is the number who pays taxes; the employed workforce being 10.5 million (Source: 1st quarter 2008- Dept of Statistics Malaysia). I do not have tax payer demographics but taking from the median tax band of 13%, if IRB decides to define this rebate as taxable it may stand to gain about at least RM93 million. This figure could be higher, up to RM171 million depending on taxpayer band. The estimated number of vehicles legible for rebates is estimated to be slightly over 7.05 million (from MAA and JPJ records), giving rise to a possible total pay out of over RM4.4 billion in rebates.

As one can see from the above estimation, the Malaysian Government will never be able to recoup fully the possible RM4.4 billion rebates. Even if it intends to do it the back door way by making the rebate partially or fully taxable, the estimated recoup is just small percentage of the total rebate payout- the Government might as well save the public unrest and ask IRB to shut up and bite the bullet.

1 comment:

  1. Car Tax is to be based on C02 Gas emissions. However, the solution may not be greater car tax prices, we shold ensure that car manufacturers are cleaner and greener. The European Environment Commissioner must announce new measures that will make car manufacturers make more efficient and cleaner cars. This simple and attainable process would have an immediate effect on reducing the worlds spiralling greenhouse gas emissions.