KUALA LUMPUR, Oct 28 — Reduced personal tax rates for the middle class indicate efforts finally to woo the segment often left empty handed in the yearly Budget, according to observers.

One tax expert ventured that the lower tax rates for the Middle 40 (M40) of income earners was akin to the indirectly extending the 1Malaysia People’s Aid (BR1M) to the segment that do not qualify for the direct cash aid meant to mitigate rising costs.

When tabling the 2018 National Budget, Prime Minister Datuk Seri Razak announced that roughly 2.3 million Malaysians earning between RM20,001 and RM70,000 will enjoy a two point reduction to their tax rates.

"Reduced tax means they will have more income now. A group of taxpayers may not be eligible for BR1M so this is the government's way of giving back to the middle income class,” said S Saravana Kumar, the taxation law specialist at Lee Hishammuddin Allen and Gledhil,

"This group won't benefit from BR1M but this two percentage point reduction is to be welcomed, because they will get some cash back.”

With the cut, those earning between RM20,001 and RM35,000 annually will see their tax rates drop from five per cent to three per cent, while those making between RM35,001 and RM50,000 will go from 10 per cent to eight per cent.

Finally, those taking home between RM50,001 and RM70,000 will pay 14 per cent of their taxable income instead of the 16 per cent now. Those in the brackets above have their tax rates unchanged.

Najib said the reduction would put an additional RM1.5 billion back in the pockets of Malaysians, with the benefiting taxpayers set to recoup between RM300 and RM1,000 each from the cut.

Saravana said that the impact from the extra RM1.5 billion will also contribute to further growth,

Adding that the cost to the government was minimal as it would likely recoup the foregone revenue through goods and services tax (GST) when the savings are spent.

"All this will create economic opportunity for SMEs, and service providers. With RM1,000 you can't buy property, but (you) can spend the money for services. That is how it will help this kind of industry to maintain and grow," he said.

Malaysian Tax Research Foundation‘s Board of Trustees Chairman SM Thaneermalai also said that the focus on M40, especially the tax cuts, set Budget 2018 apart from the previous federal spending plans.

He added, however, that the announcements will put added pressure on the government to ensure that it can afford the incentives and benefits announced.

“This is an election budget and it had something for everyone,” he said.

Universiti Utara Malaysia analyst Mohd Azizuddin Mohd Sani said that the incentives from M40 were something that did not exist in the previous budget in 2017.

He also noted that Putrajaya was able to include these for 2018 without jeopardising its traditional vote banks such as rural voters, Felda settlers, and those in Sabah and Sarawak.

Sunway University economics professor Yeah Kim Leng said he believed the lowered taxes would make a “huge difference” for the M40, and noted that several highways would also have their tolls abolished.

Political analyst Oh Ei Sun, who is an adjunct senior fellow at the Nanyang Technological University’s S. Rajaratnam School of International Studies, said that while middle income earners were not the main target of Budget 2018, there were clear attempts to court the group.

“It would appear to be meant to solidify the rural voter base, although for urban voters new subway lines are to be built and some tolls scrapped. The tax cuts are the main attraction,” he said.