Kenanga Research expects the government to cut income tax rate by one per cent in Budget 2011 tomorrow in a move to win over the hearts of the rakyat.

'Though Malaysia's income rate remains relatively high, the continued review of the rates would help reduce the gap to attract foreign professionals as well as woo back Malaysian overseas talent,' it said in its 2011 Budget Preview here today.

Kenanga said although it would cost the government an estimated RM400 million to RM500 million for every one per cent cut and put a strain on fiscal finance, it may nonetheless benefit the economy in general as it would raise household disposable income and boost consumer spending.

It said other justification for a tax cut would be the need to realign with the lower corporate tax, which was reduced on annual staggered basis of one per cent each year for the past three years to 25 per cent todate.

'If the government decides not to cut personal income tax just yet, alternatively it may opt to increase the individual income relief to RM10,000 from the current RM9,000,' it said.

The research house said as opposed to income tax cuts, raising personal income tax relief would put less strain on the fiscal budget.

It said this may also pave the way for an increase in the ceiling of income tax relief for life insurance premium, insurance premium for education, medical benefit or mutual fund.

'In addition, the government may consider, among others, raising the threshold of taxable income bracket from the current RM2,950 for unmarried individuals and RM3,200 for married individuals as well as extending and adding more personal tax relief,' it said. -- Bernama