Key Highlights of Malaysia Budget 2025

The Malaysia Budget 2025, themed “Reinvigorating the Economy, Driving Reforms and Prospering the Rakyat,” focuses on strengthening the economy while enhancing the well-being of Malaysians. It features the largest budget allocation in Malaysia’s history, totaling RM421 billion, with RM335 billion dedicated to operating expenditure and RM86 billion to development expenditure.

Key Highlights for Businesses:

• Global Minimum Tax (GMT): The government has reaffirmed its commitment to implementing GMT from 1 January 2025, affecting large multinational corporations (MNCs). Recognising potential challenges to Malaysia’s competitiveness in attracting foreign direct investments (FDIs), the government plans to streamline existing tax incentives, introduce non-tax incentives and consider a Strategic Investment Tax Credit (SITC). However, details regarding these plans are yet to be released.

• Tax Incentives:
  • Supply Chain Resilience Initiative: To bolster local supply chains, the budget proposes a double tax deduction for MNCs on corporate expenditure (up to RM2 million annually for three consecutive years). Tax deductions will be granted to MNCs or their suppliers engaging in joint ventures with local suppliers, and outcome-based tax incentive packages will be offered to participating local suppliers.
  • Smart Logistics Complex (SLC) Tax Incentive: To improve supply chain efficiency, SLCs meeting specific criteria will receive a five-year income tax exemption equivalent to an investment tax allowance (ITA) of 60% on qualifying capital expenditure, offsetting up to 70% of statutory income each year.
  • Increased Export Incentive for IC Design Services: The budget expands the increased export incentive to include companies engaged in Integrated Circuit (IC) design services, aligning with the New Industrial Master Plan 2030’s goal of making Malaysia an advanced IC design hub. This incentive grants tax exemption up to 70% of statutory income, equivalent to 50% of the value of increased exports.
  • Accelerated Capital Allowance (ACA) for E-Invoicing: To promote e-invoicing adoption, businesses will benefit from ACA on the purchase of ICT equipment, computer software packages and consultancy fees, claimable over two years.
  • Tax Incentive for Flexible Work Arrangements (FWA): Employers implementing FWAs can claim a 50% further deduction on expenses for capacity building and software acquisition, with a cap of RM500,000 and verification by Talent Corporation Malaysia Berhad.
• Expansion of Sales and Service Tax (SST): Aiming for a more progressive tax regime, the budget proposes expanding the SST scope to include B2B commercial service transactions like fee-based financial services, and increasing sales tax on non-essential items such as imported premium goods. Basic food items remain exempt from sales tax. The government plans to consult with stakeholders before finalising specifics.
• Introduction of Carbon Tax: Starting in 2026, the iron and steel and energy industries will be subject to a carbon tax to encourage low-carbon technology adoption. Revenues will fund research and green technology programmes.
• Stamp Duty:
  • Self-Assessment System: A self-assessment system for stamp duty will be implemented in phases, starting 1 January 2026, affecting various instruments and agreements.
  • Exemption for MSMEs and Investors via IEO Platforms: 100% stamp duty exemption for loan or financing agreements executed by MSMEs and investors through Initial Exchange Offering (IEO) platforms registered with the Securities Commission Malaysia, applicable for two years from 1 January 2025.
  • Exemption for Skim Pembiayaan Mikro (SPM): Stamp duty exemption will be granted for SPM loan or financing agreements up to RM100,000, effective for agreements executed from 1 January 2025.
• Minimum Wage Increase: The minimum wage will increase from RM1,500 to RM1,700 per month, effective 1 February 2025. Employers with fewer than five employees have a grace period until 1 August 2025.
• Johor-Singapore Special Economic Zone (JSSEZ): JSSEZ and Forest City’s development as a Duty-Free Island and Financial Hub could present opportunities for businesses in real estate, tourism, and cross-border trade. Increased economic activity and foreign investment may benefit companies in or around these zones.

Key Highlights for Individuals:

• Dividend Tax: A 2% tax will be imposed on dividend income exceeding RM100,000 received by individual shareholders annually, effective from the year of assessment (YA) 2025. Exemptions apply to foreign-sourced dividend income, dividends from companies with certain tax incentives, and distributions from EPF, ASNB, LTAT, or unit trusts.
• Foreign-Sourced Income (FSI) Exemption Extension: Resident individuals will enjoy a tax exemption on qualifying FSI remitted into Malaysia until 31 December 2036, provided the income was taxed in its source country. This extends the previous exemption period, which was set to end in 2026.
• Housing Loan Interest Relief: Individuals will receive tax relief on housing loan interest payments for their first residential home. The relief amount depends on the property value: up to RM7,000 for homes valued up to RM500,000 and up to RM5,000 for homes valued between RM500,000 and RM750,000. This relief applies to sales and purchase agreements executed from 1 January 2025 to 31 December 2027.
• Tax Reliefs:
  • Increased Relief for Disabled Individuals: The relief for disabled individuals will increase to RM7,000, for disabled spouses to RM6,000, and for unmarried disabled children to RM8,000.
  • Expanded Childcare Allowance Exemption: The tax exemption on childcare allowance (up to RM3,000) will include elderly care for parents and grandparents.
• Extended Reliefs:
  • SSPN: Tax relief on net savings in the National Education Savings Scheme (SSPN) will be extended for another three years (until YA 2027). Only one parent can claim the relief, capped at RM8,000. Withdrawals for education costs will not reduce the eligible amount for relief.
  • Private Retirement Scheme (PRS) and Deferred Annuities: Tax relief of up to RM3,000 on contributions to PRS and premiums for deferred annuities will be extended for five years (until YA 2030). An 8% withholding tax remains applicable on withdrawals before age 55, except for permitted purposes.
• Childcare Fees: Tax relief of up to RM3,000 for fees paid to registered childcare centres or kindergartens for children aged six and below will be extended for three years.
• Increased Education and Medical Insurance Relief: The tax relief on premiums paid for education and medical insurance will increase from RM3,000 to RM4,000.
• Expanded Medical Expenses Relief: Tax relief for medical expenses (up to RM10,000) will cover individuals insured under co-payment policies.
• Expanded Relief for Full Medical Check-up: The relief for full medical check-ups, mental health check-ups or consultations, and COVID-19 detection tests, capped at RM1,000, will be expanded.
• Expanded Relief for EV Charging Facilities: The relief will include the purchase of food waste composting machines for household use, claimable once every three years.
• Minimum Wage Increase: The minimum wage increase will benefit individuals earning minimum wage.

Overall, the Malaysia Budget 2025 presents a mix of opportunities and challenges for both business owners and individuals. Staying informed and adapting to these changes will be crucial for navigating the evolving economic landscape.