Beyond STR and SARA: The Tax Relief Malaysians Overlook

Budget 2027 has generally been well received, particularly for its social measures. Yet some  commentators have described its financial and economic impact as neutral and some viewed as lacklustre, questioning whether it comparably offers enough to households than before. . 

Both perspectives deserve consideration. Public expectations are understandably high, but a budget must also contend with the government's revenue constraints, rising expenditure commitments and the need to reduce the fiscal deficit. A long wishlist cannot be fulfilled simply by increasing allocations without regard to how they are financed.

Against this backdrop, one aspect of Budget 2027 deserves greater recognition is the tax reform. While cash assistance through Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) attracts public attention, tax relief offers another form of support to households while stronger revenue collection helps finance public services and sustain fiscal consolidation.

Recognising the M40

Budget 2027 raises individual tax relief from RM9,000 to RM12,000, the first revision since 2010. It also reduces individual income tax rates by one percentage point for chargeable income between RM70,001 and RM150,000. The government estimates that approximately five million taxpayers will receive additional disposable income of up to RM1,600. 

Deloitte Malaysia tax leader Sim Kwang Gek, quoted by The Edge Malaysia, illustrated the benefit as a taxpayer with RM100,000 in chargeable income could save approximately RM840, rising to RM1,520 for someone with RM150,000. 

These savings will not fully compensate for rising housing, education, transport and family-care costs. Nevertheless, they represent an important acknowledgement that the M40 also needs assistance. Many middle-income households earn too much to qualify for some targeted transfers but face substantial financial commitments, particularly those supporting both children and ageing parents.

KPMG Malaysia's head of tax, Soh Lian Seng, highlighted the importance of supporting the M40, especially the sandwich generation balancing childcare and care for elderly parents. His assessment reinforces the point that household financial pressures extend beyond the lowest-income groups. 

Tax relief may be less visible than cash assistance because its benefit appears through lower tax liabilities rather than a direct payment. But its purpose is similar: to preserve household purchasing power. The significance is not that tax relief solves the cost-of-living problem, but that it recognises a group whose financial difficulties are sometimes overlooked.

Progressive Taxation: Who Pays More?

Budget 2027 also lowers the threshold at which the 30% top marginal income tax rate applies, from chargeable income exceeding RM2 million to income exceeding RM1 million.

A marginal tax rate applies only to income within the relevant band, not to a taxpayer's entire income. Deloitte's Sim Kwang Gek explained that the rate on the RM1 million–RM2 million band rises from 28% to 30%. A taxpayer with RM1.5 million in chargeable income would therefore pay RM10,000 more annually, while someone with RM2 million or more could face up to RM20,000 in additional tax. 

The government's additional revenue will depend on how many taxpayers are affected and their chargeable incomes. The RM20,000 figure represents the maximum additional liability for an individual within this band, not a forecast of total collections.

This is an important element of progressive taxation. Asking higher earners to contribute more while reducing the tax burden on middle-income taxpayers. The additional revenue can help offset some of the cost of tax relief, although the overall fiscal effect depends on the combined impact of all tax measures.

Revenue Collection and Fiscal Sustainability

Tax reform matters beyond individual households. Federal revenue for 2026 has been revised upwards to RM363.6 billion from the original RM343.1 billion estimate, and is projected to rise to RM380.8 billion in 2027. PwC Malaysia notes that stronger revenue collection and subsidy targeting help create room for tax relief while keeping the fiscal deficit on a downward path. 

The World Bank has also highlighted Malaysia's relatively low tax collection compared with its economic potential. Its analysis places the tax-to-GDP ratio at around 12% in 2023, pointing to scope for stronger revenue mobilisation.

The answer need not be a continual increase in tax rates. Better compliance, stronger enforcement by the Inland Revenue Board (LHDN), reduced leakages and a broader tax base can improve collections. Consumption taxes may also contribute, but their design must consider the burden on lower-income households.

Stronger revenue would give the government greater capacity to finance healthcare, education, infrastructure and social assistance while reducing dependence on borrowing. Fiscal consolidation becomes more sustainable when it rests on reliable revenue rather than expenditure restraint alone.

Beyond Visible Assistance

STR and SARA provide immediate support to eligible households. Tax relief allows taxpayers to retain more of their earnings, while progressive taxation and stronger compliance help finance the government's wider responsibilities.

Budget 2027's tax measures may not provide the M40 with sufficient relief to overcome rising living costs, but they recognise that this group also needs support. At the same time, better revenue collection is essential to sustain assistance and public services without placing an excessive burden on future generations.

The real measure of tax reform is not simply how much the government collects or how much taxpayers save. It is whether the system raises revenue fairly, protects household purchasing power and finances public services sustainably. That contribution deserves greater recognition alongside the more visible announcements of cash assistance.