Cost of Living and Income Tax Comparisons Between Malaysia and Singapore

Many people assert that Malaysia is far less expensive than Singapore. However, the truth can be nuanced, especially when considering different income levels and the impact of taxation. This article aims to provide a comprehensive analysis of the cost of living and income tax differences between these two Southeast Asian cities, highlighting the factors that contribute to their relative costs.

Cost of Living and Necessities

It is commonly accepted that Malaysia offers a lower cost of living for necessities, particularly when it comes to basic items such as food, utilities, and transportation. According to various cost of living indices, Malaysia is often mentioned as a more affordable option compared to Singapore. For instance, a steak in a restaurant might cost around RM15 (which is equivalent to about USD4.5) in Kuala Lumpur, while the same meal might cost around SGD15 (USD10.2) in Singapore, due to a stronger SGD (about 3.5 times the amount of SGD-MYR exchange rate).

Purchasing Power and Income Levels

The story changes when we consider purchasing power and income levels. Singapore is often ranked as the world's most expensive city to live in, having held the title nine out of eleven years over the past decade. This ranking is based on a comprehensive checklist, including various matrices that define the cost of living. Despite the higher cost of living, Singaporeans can still save on income tax compared to their counterparts in Malaysia. For example, a person earning SGD1,000 per month in Singapore would spend less on food compared to a person earning RM1,000 in Malaysia. This is because, in Malaysia, a high earner would have to pay higher income taxes, reducing their disposable income.

Income Tax Burden and Other Taxes

It is also important to note that Singapore’s income tax burden can be lower than Malaysia's, particularly for those earning higher incomes. However, what the Singaporean saves in income tax is offset by the 7% Goods and Services Tax (GST) that is applicable in Singapore. In contrast, Malaysia has a 6% Sales and Service Tax (SST), but the range of goods and services subjected to this tax is limited, meaning some items are not taxed at all.

The Impact of Housing and Car Ownership

When considering the cost of owning a house and a car, Singapore generally has a higher cost of living than Malaysia. This is due to the regulatory measures such as the Central Provident Fund (CPF) Buy-Down Scheme, which mandates a higher down payment ratio for home buyers. Additionally, the taxes and duties associated with car ownership in Singapore are significantly higher, making it less affordable to own a car in the city-state.

Exchange Rates and Buying Power

Some argue that the higher income tax in Malaysia does not significantly impact purchasing power due to the stronger SGD. For example, if the exchange rate is 3.5 times higher in SGD, a high-income earner in Singapore might have a higher absolute income but their buying power might still be 3.5 times greater than that of a high-income earner in Malaysia.

In conclusion, while Malaysia might offer a lower cost of living for necessities and can provide better disposable income for lower-income individuals, Singapore's lower income tax burden and advantages in purchasing power can make it a more attractive option for high-income earners. Both cities have their unique cost structures and tax regimes, and the decision between them largely depends on an individual's income level and personal financial priorities.