Individual Income

Sources of individual income

Individual income is the total money a person receives over a given period, usually a month or a year. It is earned from several sources linked to the factors of production a person owns:

• Wages and salary — the reward for labour supplied, such as a teacher’s monthly salary or a construction worker’s daily wage.
• Rent — payment for letting others use property such as a house, shop or land.
• Interest — the reward from capital that is lent or saved, such as interest on a bank deposit.
• Profit — the surplus an entrepreneur earns after deducting business costs.
• Transfer payments — money received without any production in return, such as government aid, pensions and scholarships.

Gross income and disposable income

Gross income is total income before any deductions. From it we subtract income tax and compulsory contributions such as the EPF (Employees Provident Fund / KWSP). What remains that the person can actually spend or save is called disposable income.

Income tax and EPF

Income tax is a direct tax because it is imposed directly on a person’s income and cannot be passed on to anyone else. In Malaysia it is collected by the Inland Revenue Board (LHDN) and used to fund public spending.

The EPF contribution is compulsory retirement savings. A portion of an employee’s salary is deducted every month and the employer adds a contribution too, so the worker has savings on retirement.

Individual income and the economy

The level of individual income affects a person’s standard of living and purchasing power over goods and services. A higher income lets a person enjoy more needs and wants, save for the future, and pay taxes that add to government revenue. Raising income through better education, skills and job opportunities therefore matters not only to the individual but also to the growth of the national economy as a whole.