KUALA LUMPUR: The government plans to replace the current classification system of B40 (bottom 40 per cent), M40 (middle 40 per cent), and T20 (top 20 per cent) based on household income with a new approach based on net disposable income.
Net disposable income refers to the income left after taxes, deductions, and essential living expenses, rather than just gross income.
Economy Minister Rafizi Ramli said this will enable the government to identify the eligible recipient for the RON95 subsidy rationalisation.
"We will change it to a net disposable income approach and most probably that will happen very soon because subsidy retargeting has to happen this year. So we need to prepare eligibility criteria first in time for implementation. We are at the final stage," he said during the Fireside Chat at Forum Ekonomi Malaysia.
Rafizi said that the classification was a legacy system that fit the demand and infrastructure of the time it was adopted.
He added that the advancement of technology has allowed the government to be more granular in collecting data to migrate to a fairer classification system.
"But times have changed. Now we know just drawing a statistical line is risky when it comes to inclusion and exclusion rates.
"With technology, we will be able to implement a more granular approach to it, to go on a unique person by person classification but we need to put the data infrastructure first, which is PADU.
"If you want to ensure you can migrate to a system that is fairer, more granular and really targets individuals and households, we need that data infrastructure," Rafizi added.
Khazanah Research Institute (KRI) recently challenged Malaysia's household classification, arguing that only the top 30 per cent of households are truly middle-income or aspirational.
KRI's findings contrast with the government's view that the top 60 per cent, made up of M40 and T20 groups, are middle class.