Budget 2025 advances reforms for Malaysia’s economic revitalization

Malaysia's national 2025 Budget proposal, with a total allocation of RM421 billion, signals a serious plan to advance economic reforms that aim to expand the tax base and reduce fiscal debt.

Mr. Soh Lian Seng, Head of Tax at KPMG in Malaysia, commented on some notable areas:

The act of widening Malaysia’s tax revenue base through the imposition of a 2% Dividend Tax (starting in the year of assessment 2025) on dividend income of over RM100,000 earned by individual shareholders, is a unique idea, which is obviously targeted at the top 15% taxpayers without further burdening the other 85%.

Positive outcomes for the benefit of national development can also be expected with the introduction of Carbon Tax (on steel, metal and energy industries come 2026), a phased increase in the excise duty rates on sugary drinks, alongside the progressive broadening of the Sales Tax and Service Tax (“SST”) scope and rate coverage. It is hoped that these tax reforms can be supported with clear regulations, guidelines, and a reasonable transition plan to ensure successful implementation.

Significant economic reform measures to note include tax incentives for complex “smart logistics” activities, the approved Single Family Office Scheme for the Special Financial Zone in Forest City, Johor, and ESG-focused initiatives such as tax reliefs for Electric Vehicle (“EVs”) ownerships. Additionally, the continued concessionary tax rates and financial support for Micro, Small and Medium Enterprises (“MSMEs”) are also welcomed.

The introduction of the New Investment Incentive Framework by the third quarter of 2025 to facilitate inclusive investments is an attractive initiative. However, there must be careful consideration of the effects of applying the Global Minimum Tax (“GMT”) on existing tax incentives. The government should ensure that Malaysia’s mandate to implement GMT and impose a 15% effective tax rate must be balanced with investors’ need for clarity on GMT-compliant tax incentives, so that Malaysia’s competitiveness as a leading international investment destination is not adversely impacted.

The rakyat’s welfare remains a central focus in the 2025 Budget with the extension of personal income tax reliefs coupled with broader coverage to include differently abled individuals (“OKUs”) and senior citizens, increase in minimum wages, higher cash handouts, and a 10-year extension of the tax exemption on foreign-sourced dividend income received by individuals in Malaysia. These personal tax reliefs reflect the government’s intention to “raise the floor” to narrow income disparities and help ease the effects of rising costs of living.

For more insights, visit kpmg.com.my/nationalbudget.

For media-related queries, please email marcom@kpmg.com.my