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SINGAPORE: T15 is the new buzzword in Malaysia. Budget 2025, presented by Prime Minister and First Finance Minister Anwar Ibrahim on Oct 18, popularised the “Top 15 per cent” category. It refers to the removal of subsidies in residential schools and 95-octane (RON95) petrol, and generally to public higher education and health services.

The issue of well-heeled kids enjoying subsidised residential schooling has simmered for years but Anwar has given it a stridency by slamming the indulgences of the “maha kaya” (ultra-rich) in recent months.

This class now has another name: T15, for the 15 per cent richest households based on income, and other to-be-determined measures. The financial savings from rescinding residential school subsidies for the T15 may be low, but the political mileage is high.

The rhetoric of the rich disproportionately benefiting from cheap fuel crescendos whenever a government revives the agonising cause of subsidy reform. Drivers of large expensive cars consume more of the subsidy, while lower-income earners who tend to drive smaller vehicles benefit less - yet need the subsidy more.

The Ministry of Finance estimates that the T15 enjoyed RM8 billion (US$1.8 billion) of the RM20 billion in fuel subsidies which provide Malaysians the cheapest petrol in Southeast Asia.

FUEL SUBSIDY REFORM IS DIFFICULT

Removing subsidies for ultra-rich families in residential schools is technically uncomplicated, although a multi-tiered fee structure is arguably more reasonable than a binary system of non-subsidy for the T15 and subsidy for the rest. The Ministry of Education could obtain family income data and charge fees per year or semester accordingly.

Petrol, in contrast, is constantly consumed at stations across the land. Malaysia has floated the price of RON97 since May 2018 but T15 car owners cannot be compelled to use the higher grade petrol; they can freely consume subsidised RON95.

Fuel subsidy reform is difficult. Anwar’s Madani government has declared petrol as the next step in its subsidy rationalisation, after raising tariffs on electricity in January 2023 and cutting diesel subsidies for private, non-commercial vehicles in June 2024.

Budget 2025 has steered clear of general reform, proposing instead to retain the subsidy for the vast majority while abolishing it for the T15.

The emergence of this T15 label came with scant detail. It has stirred debate over the income level that defines the ultra-rich. The Department of Statistics’ 2022 Household Income Survey puts the threshold at around RM13,000 per month, but the government might be inclined to set a higher figure.

This plan to impose differential petrol prices, however, raises more fundamental issues.

First, Malaysia should not lose sight of the underlying sustainability and climate crisis mitigation objectives of fuel subsidy rationalisation. Cheap fuel induces higher greenhouse gas emissions; higher prices are economically and politically challenging but must continually be a sustainable development goal.

Second, the enforcement of differential petrol prices at the pump faces steep hurdles due to the sheer volume and generality of the subsidy.

Whereas the diesel subsidy applies to commercial vehicles which carry a fleet card, the proposed petrol subsidy will apply to the vast majority, possibly by requiring MyKad identity cards to be scanned at the pump to retrieve income status. Besides the technical complications, the mechanism can be easily gamed by borrowing MyKads.

Third, differentiating T15 from the rest critically hinges on comprehensive and accurate data, especially of income. The PADU (Pangkalan Data Utama) voluntary and self-reporting central database has fallen short of its goal of being the info hub for targeting subsidies.

The Inland Revenue Board already has the most authoritative income data; the Road and Transport Department records vehicle ownership. Will the government put the people through more rounds of PADU, or utilise tax returns and vehicle registries?

RAISING INCOME TAX RATES

Budget 2025 proposes a massive effort - to regressively defer urgent fuel subsidy reform.

Anwar’s quest to make the T15 pay more would be better served by raising income tax rates for the higher income brackets and lifting fuel subsidies for all and sundry. For income earners outside the T15, higher fuel costs can be mitigated by disbursing cash transfers based on vehicle registration.

The premise for making the T15 forego fuel subsidies is the same as making them pay more income taxes: They can afford it.

The Budget 2025 speech highlights Malaysia’s low tax revenue collection - at 12.6 per cent of GDP. This is lower than the corresponding figures for Thailand, the Philippines and Singapore, and underscores the principle of fairness consistent with Anwar’s Madani economy.

The pursuit of a fairer, more progressive taxation system emphatically applies to personal income tax, which accounts for a mere 13 per cent of total federal revenue.

Federal budgets of the past decade have executed some tax cuts for middle- and high-income earners, and some raises at the top. Budget 2014 reduced the marginal tax rates on chargeable income above RM100,000; Budget 2018 cut rates for the RM20,000 to RM70,000 range.

Budget 2020 added a new topmost bracket for those reporting above RM2 million in chargeable income, whose marginal highest tax rate was raised from 28 per cent to 30 per cent. But this measure only affected 2,000 income earners.

Malaysia’s tax code is generous to the rich. The highest income brackets pay substantially lower rates than Malaysia’s neighbours and comparable countries. Raising the rates for high-income earners would be in line with other countries’ practices, including open and technologically advanced economies like South Korea and China.

Contemporary tax returns data are not available, but the Statistics Yearbook 2022 reported some instructive snapshots.

In 2018, persons with chargeable income above RM100,000 constituted 13 per cent of income tax filers and contributed 79 per cent of Malaysia’s personal income tax revenue; while 7 per cent were above the RM150,000 threshold and paid 67 per cent of the total.

Raising the marginal income tax rates on chargeable income above a baseline, say RM150,000, would align with Madani social justice ideals while also generating a substantial amount of revenue.

Anwar Ibrahim wants Malaysia’s ultra-rich to pay more but has chosen a hazardously complicated mode of fuel subsidy removal for the T15. The elegantly simpler alternative of raising income taxes on the top brackets should be brought to the table.

Lee Hwok-Aun is Senior Fellow of the Regional Economic Studies Programme, and Co-coordinator of the Malaysia Studies Programme, ISEAS - Yusof Ishak Institute. This commentary on ISEAS - Yusof Ishak Institute’s blog, Fulcrum.