Malaysia Budget 2025: Key tax changes and economic reforms for a stronger Malaysia.

On 18 October 2024, honourable Prime Minister and Finance Minister YAB Dato’ Seri Anwar Ibrahim delivered the 2024 Budget-themed “Reinvigorating the Economy, Driving Reforms, and Prospering the Rakyat”.

Budget 2024 is the highest of all the previous budgets tabled, at RM421 billion, with RM335 billion earmarked for operating expenditures and RM86 billion for development expenditures. At the same time, the Madani government has set a record-breaking revenue collection of RM340 billion.

The Unity Government’s third budget is formulated based on the MADANI economic framework, which focuses on revitalising the economy, catalysing transformative change, and improving people’s overall well-being.

Budget 2025 reflects the Unity Government’s continued determination to uplift the country’s economy and the Rakyat’s well-being while setting a sustainable foundation for future tax reforms.

The following pages provide a quick snapshot of the key tax changes and proposals announced in this year’s budget.

1. Individual tax

Dividend tax

Dividend tax on income exceeding RM100,000:

• Tax on dividend income of individual shareholders exceeding RM100,000 per annum will be at the rate of 2%, effective from YA2025.

Extension of foreign-sourced income exemption

Taxation of foreign-sourced income received by individuals:

• Resident individuals will be exempt from tax on foreign-sourced income received in Malaysia up to 2036, provided such income has been subjected to income tax in the country from which it was received.

Tax relief increase/expansion from YA 2025

Medical expenses incurred for self, spouse or child (up to RM10,000):

• Assessment and diagnosis, early intervention programme, and continuous rehabilitation treatment for children aged below 18 with learning disabilities—the limit will be increased from RM4,000 to RM6,000.
• Relief for medical check-ups, mental health check-ups, and COVID-19 detection tests, limited to RM1,000, will be expanded to include the purchase of influenza test kits, self-testing medical devices, and disease detection examination fees.

Tax relief for a disabled person:

• Tax relief for the disabled individual taxpayer to be increased from RM6,000 to RM7,000
• Taxpayer with a disabled spouse, to be increased from RM5,000 to RM6,000
• Tax relief for the individual taxpayer with unmarried disabled children to be increased from RM6,000 to RM8,000

Education and medical insurance premiums:

• Tax relief amount to be increased from RM3,000 to RM4,000

Sports activities, health and elderly care:

• Relief on sports equipment and activities expanded to include parents
• Full medical check-up expanded to include vaccination
• Medical treatment, special needs and parental care expenses expanded to include grandparents

Extension on tax reliefs

Private Retirement Schemes (PRS) and Deferred Annuities:

• RM3,000 relief on contributions to PRS and premiums paid for deferred annuities extended to YA2030

Net savings in Skim Simpanan Pendidikan Nasional (SSPN):

• RM8,000 relief for either parent on net annual savings (inclusive withdrawals to finance education costs for further studies) in SSPN extended to YA2027.

Child care centre or kindergarten fees (up to RM3,000):

• Extension on fees paid to registered child care centres or kindergartens for children aged six years old and below up to YA2027

Tax relief reintroduced

Housing loan interest payment for first residential home:

• Interest payment for the first residential home loan (individually or jointly owned) is to be reintroduced as follows:

• Up to three consecutive YAs, commencing from the first year the housing loan interest is paid
• Sales and Purchase Agreement (SPA) must be executed between 1 January 2025 and 31 December 2027

2. Corporate tax

Global tax

Global Minimum Tax (GMT):

• With the GMT and Top-Up Tax implementation from 1 January 2025, the government is committed to reviewing the existing incentives, introducing non-tax incentives and examining the feasibility of the Strategic Investment Tax Credit mechanism.

Tax incentives

Accelerated Capital Allowance for e-invoicing:

• Qualifying expenditure for the purchase of ICT equipment and computer software package, consultation, licensing, and incidental fees for the development of customised computer software for the implementation of e-invoicing will be granted capital allowance at 20:40%
• For the YA 2024 and YA2025

Smart Logistics Complex (SLC):

• For eligible SLC companies, it is proposed that income tax exemption equivalent to an ITA of 60% on qualifying capital expenditure incurred for five years be set off against up to 70% of statutory income for each assessment year.
• Eligible SLCs include:
  • SLC investor and Operator that invests in the construction of smart warehouses that utilise IR4.0 elements and undertake eligible logistics services activities
  • SLC Operator that leases a smart warehouse under a long-term lease of at least ten years and undertakes eligible logistics services activities
  • Applicable for applications made to the Malaysian Investment Development Authority (MIDA) from 1 January 2025 until 31 December 2027

Tax incentives for employers:

• The following will be granted a further deduction of 50% for employers:
  • Expenses incurred for capacity building and software acquisition for implementing flexible work arrangements
  • Providing caregiving leave benefits of up to 12 months
  • Employment expenses paid for hiring women returning to work after a two-year career break

Tax deduction for social responsibility:

• Tax deduction for contribution or sponsorship of Smart Artificial Intelligence driven Reverse Vending Machines (RVM) to be extended for two years till 31 December 2026

Increased export:

• Companies engaged in selected service activities and successfully increasing exports can claim tax exemption up to 70% of the statutory income equivalent to 50% of the value of increased exports. As such, the increased export incentive for the services sector to be expanded to Integrated Circuit (IC) Design services.

Others

Introduction of Carbon Tax:

• It is proposed to introduce a Carbon tax on the iron, steel and energy industries by 2026
• The Carbon tax revenue will be used to fund research programs and green technology initiatives

3. Indirect tax

Sales and Services Tax (SST)

Review of the Sales Tax:

• Sales tax exemption will be maintained on basic food items
• Sales tax will be increased on non-essential items such as imported premium goods
• To be effective 1 May 2025

Expansion of services tax scope:

• The scope of service tax is to be expanded to include new services, such as commercial service transactions between businesses (B2B)

Stamp Duty

Implementation of a self-assessment system for stamp duty:

• Self-assessment stamp duty system (STSDS) be implemented in phases based on the types of instruments or agreements.

Stamp duty exemption on loan or financing agreements through the Initial Exchange Offering (IEO) platform:

• There would be a 100% stamp duty exemption for loan or financing agreements executed from 1 January 2025 until 31 December 2026 for loan or financing agreements executed by Micro, Small and Medium Enterprises (MSMEs) and investors through the IEO platforms registered with the Securities Commission Malaysia.

Stamp duty on loan or financing agreements based on Shariah principles:

• A fixed RM10 stamp duty will be imposed on a loan or financing agreement to purchase goods based on Shariah principles other than hire purchase. For loan or financing agreements executed from 1 January 2025.

Excise duty

Review of excise duty rate on sugar-sweetened beverages:

• It is proposed the excise duty on sugar-sweetened beverages be increased in phases starting from 1 January 2025 at 40 cents per litre.