As income tax filing season approaches, public attention has turned to Malaysia’s RM37,333 personal tax-free income threshold. While the figure has drawn widespread interest, taxpayers and consumer groups are increasingly calling for a broader review of the country’s personal income tax relief system.

Many experts argue that existing reliefs are outdated and no longer reflect the real cost of living faced by households today.

How The Personal Tax-Free Income Threshold Is Calculated

Tax professionals caution that the RM37,333 tax-free income threshold is often misunderstood. It is not a single exemption set by policy, nor is it a standalone relief.

Instead, the threshold is a technical outcome of Malaysia’s progressive income tax structure. It is derived from the RM9,000 personal income tax relief together with a RM400 tax rebate for individuals whose chargeable income does not exceed RM35,000. This framework has been in place since the Year of Assessment 2023.

Datin Christine Koh, Managing Director of Owen KLCA PLT, said the threshold should not be confused with personal reliefs, which determine how much income is deducted before tax is calculated.

Personal Relief Levels Have Remained Unchanged For Years

According to Koh, several key reliefs, including the RM9,000 personal relief, have remained unchanged since 2010. Over the same period, household expenses have risen steadily, particularly in urban areas.

She noted that tax reliefs apply only to specific categories of spending rather than overall living costs. As a result, they do not fully reflect rising expenses in housing, food, transport, and education.

Koh added that because relief levels have not kept pace with inflation, their impact on disposable income and household consumption remains limited, especially for families.

Consumer Groups Call For Higher Individual Relief

Consumer advocates have echoed these concerns, with the Federation of Malaysian Consumers Associations saying that the RM9,000 individual tax relief no longer reflects current household expenses after more than a decade without revision.

Chief Executive Officer Saravanan Thambirajah said increasing the relief level could help raise disposable income for lower- and middle-income households. Some stakeholders have proposed gradually increasing the relief to RM12,000 over several years to reduce the fiscal impact while better aligning it with today’s cost of living.

These proposals remain suggestions and have not been announced as government policy.

Filing Obligations Still Apply Below The Threshold

Tax professionals also stress that earning below the tax-free income threshold does not automatically remove all tax obligations.

Thenesh Kannaa, Executive Director of Tratax Sdn Bhd, explained that individuals with income from business, freelance work, rental properties, or gig economy activities are still required to submit tax returns, even if their total income falls below the threshold.

This includes income from ride-hailing services and social media content creation. Under existing rules, all non-employment income must be declared regardless of the amount.

In contrast, individuals who earn only employment income may choose not to file a return if their salary is already subject to monthly tax deductions, provided they meet the conditions set by the Inland Revenue Board.

Differing Views On Using Cost Of Living As A Tax Benchmark

Not all experts agree that tax reliefs should be closely tied to cost-of-living measures. Centre for Market Education Chief Executive Officer Dr Carmelo Ferlito said designing tax thresholds to suit different household types is inherently challenging due to wide differences in income structures, lifestyles, and living costs.

He argued that cost-of-living benchmarks vary significantly and should not be the primary reference point for tax policy. From this perspective, the broader issue is the overall tax burden rather than the specific level of individual reliefs.

What This Means For Individual Taxpayers

For taxpayers, the debate highlights a key distinction between tax-free income thresholds and personal tax reliefs. While the RM37,333 figure may appear to suggest a higher level of exemption, it does not reflect any direct increase in reliefs or a change in tax policy.

Because major reliefs such as the RM9,000 personal relief have remained unchanged since 2010, their value has eroded over time as prices and household expenses have risen. As a result, rising incomes do not necessarily translate into greater financial flexibility, even for those who remain within lower tax brackets.

The discussion also draws attention to tax filing obligations. Individuals with side income or non-salary earnings cannot rely on income thresholds alone when determining whether they are required to submit a return.

For now, no changes to personal income tax reliefs have been announced or legislated. Any revision would need to be introduced through the annual Budget and would apply only from the relevant Year of Assessment. Until then, financial planning will continue to depend on existing relief levels and filing rules.

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