Tax Reflection by Tony on | Malaysia | Malaysia Budget 2027

Malaysia Budget 2027: The Key Tax and Policy Announcements

Lower tax for middle-income earners and small businesses, a lower threshold for the top rate and longer incentive periods for regional hubs.

(Publication 35/2026)

Photo by Nazarizal Mohammad on Unsplash

On 9 October 2026, Prime Minister and Minister of Finance Dato’ Seri Anwar Ibrahim tabled Budget 2027 in the Dewan Rakyat, the lower house of Parliament. It is the fifth MADANI Budget. It is also the second Budget under the Thirteenth Malaysia Plan (13MP) 2026–2030. The theme is “Reaching for the Skies, While Anchored on Our Values”.

The Budget gives targeted relief to the middle-income group and to micro, small and medium enterprises (MSMEs). It asks more of the highest earners. It also extends and refocuses several investment incentives. No major new tax was announced.

This article sets out the key announcements. It covers the fiscal numbers, individual tax, business tax, incentives, indirect tax and stamp duty. It ends with the wider policy measures and the points to watch.

All measures take effect from the year of assessment (YA) 2027 unless stated otherwise. They remain proposals until the Finance Bill is passed and the relevant gazette orders are issued.

The Fiscal Picture

The Federal Government has allocated Ringgit Malaysia (RM) 459.8 billion for 2027. Operating expenditure is RM376.8 billion. Development expenditure is RM83 billion. The Prime Minister also described a wider pool of national resources of RM510 billion. This larger figure adds investments by government-linked investment companies (GLICs), public-private projects, and Federal statutory bodies and Minister of Finance Incorporated (MOF Inc) companies.

Federal revenue is estimated at RM380.8 billion for 2027 before the Budget measures. The Ministry of Finance (MOF) puts the net revenue loss from the Budget 2027 measures at about RM3.0 billion in its Federal Government Revenue Estimates. About RM2.8 billion of this loss comes from income tax. Revenue after the measures is therefore about RM377.8 billion.

Tax revenue is projected to grow by 5.8% to RM297.1 billion. The MOF expects this growth to come from steady business activity, wider Sales and Service Tax (SST) collections, e-Invoice adoption and stronger enforcement.

The fiscal deficit is the gap between what the Government spends and what it collects. For 2026, it has been revised to 3.6% of gross domestic product (GDP). The original target was 3.5%. The main reason is higher fuel subsidies following the conflict in West Asia. Fuel subsidies are expected to remain at about RM40 billion in 2027. The deficit is projected to narrow to 3.3% of GDP in 2027. The Government’s target is 3% by 2028.

Federal Government debt is projected to fall from 65.2% of GDP in 2025 to 64.0% in 2026. It is expected to fall further to 63.7% in 2027.

The economy is projected to grow by 4.8% to 5.3% in 2026. This is higher than the estimate of 4% to 4.5% on which Budget 2026 was based. Growth for 2027 is forecast at 4.2% to 5.2%. Inflation for 2027 is forecast at 1.8% to 2.8%.

Individual Income Tax

New tax bands and rates

Chargeable income is the income left after deductions and reliefs. It is the amount on which tax is calculated. The tax bands for resident individuals will change from YA 2027. There are four changes.

First, the rate on chargeable income from RM70,001 to RM100,000 falls from 19% to 18%.

Second, a new band is created for chargeable income from RM100,001 to RM150,000. It is taxed at 24% instead of 25%. Income from RM150,001 to RM400,000 stays at 25%.

Third, the 28% band now covers chargeable income from RM600,001 to RM1,000,000 only. Previously it ran up to RM2,000,000.

Fourth, the top rate of 30% now applies to chargeable income above RM1,000,000. Previously it applied only above RM2,000,000.

All other bands and rates are unchanged.

Higher individual relief

The individual relief for the taxpayer and dependent relatives rises from RM9,000 to RM12,000. This relief has not changed since YA 2010.

CPA Australia welcomed the change. In its INTHEBLACK magazine on 10 October 2026, Surin Segar, Chair of CPA Australia’s Malaysia Tax Committee, described the increase as “a welcome revision”. He added that the personal tax measures “reflect an important recognition that taxpayers need support”.

What this means in ringgit

The Government states that the rate cuts and the higher relief together will give about five million taxpayers up to RM1,600 more in disposable income.

The following illustrative workings are my own. They compare the current and proposed rates for a taxpayer who also gains the extra RM3,000 relief.

• A taxpayer with chargeable income of RM50,000 saves about RM180.
• A taxpayer with chargeable income of RM100,000 saves about RM840.
• A taxpayer with chargeable income of RM150,000 saves about RM1,520.
• A taxpayer with chargeable income between RM200,000 and RM1,000,000 saves about RM1,550 to RM1,640.

The figures at RM100,000 and RM150,000 match those published by Deloitte Malaysia in its Budget 2027 Snapshot.

The position changes above RM1 million. Chargeable income between RM1 million and RM2 million will now be taxed at 30% instead of 28%. Income above RM2 million was already taxed at 30%.

The Prime Minister presented the lower threshold for the top rate as part of the Government’s commitment to progressive taxation. Deloitte Malaysia notes that Malaysia’s top rate of 30% remains competitive in the region. It is lower than the 35% top rate in Indonesia, Thailand, the Philippines and Vietnam. It is higher than the top rates in Singapore (24%), Laos and Myanmar (25%) and Cambodia (20%).

Not every commentator sees the measures in the same way. Speaking to Business Today on 10 October 2026, Long Yen Ping, Head of Global Mobility Services at KPMG Malaysia, said that “affordability concerns are no longer confined to lower-income segments”. She proposed reintroducing or expanding targeted tax rebates for middle-income taxpayers below specified income levels. She also cautioned that repeated increases, or a much wider tax gap with competing countries, could over time affect Malaysia’s attractiveness to highly mobile talent and investment.

In the same report, Maria Adibah Zaini, Assistant Lecturer in Business Law and Taxation at Monash University Malaysia, noted that modest tax savings may go towards essentials and debt repayment rather than new spending. She pointed to household debt of about 84.4% of GDP as at March 2026. She recommended that tax reliefs and income brackets be reviewed every three to five years.

Expanded personal reliefs

Several reliefs are expanded or reorganised. The overall limits mostly stay the same.

Parents and grandparents (RM8,000). The relief will cover all types of care expenses at home, at day care centres and at residential care centres. It is no longer limited to medical care. Taxpayers will no longer need a registered medical practitioner to certify the parent’s condition. A written declaration from the carer, or a copy of the carer’s work permit, together with receipts will be enough.

Health and Well-being (RM10,000). The medical treatment relief is renamed Health and Well-being. The limit stays at RM10,000. It now covers postnatal care by a confinement centre or a qualified individual, up to RM3,000. The separate relief for breastfeeding equipment is merged into it, with a sub-limit of RM1,000. The equipment can be paid for by the taxpayer or the spouse.

Education and Skills Training Fees (RM7,000). The education fees relief is renamed and widened. Courses from certificate to doctorate level in any field now qualify. The course must be recognised by a regulatory agency and taken at a local institution or professional body recognised by the Government or approved by the Minister of Finance. Technical and Vocational Education and Training (TVET) courses for the taxpayer or spouse qualify up to RM3,000. A further RM2,000 sub-limit covers courses unrelated to employment for the taxpayer or spouse. It also covers children’s classes or tuition in science, technology, engineering and mathematics (STEM), the arts, languages and religion. Upskilling courses move out of the lifestyle relief and into this relief.

Lifestyle (RM2,500). The lifestyle relief now covers subscriptions to artificial intelligence (AI) software and applications for the taxpayer, spouse or child. It also covers pet adoption from registered animal shelters. Vaccination, spaying and neutering by registered veterinary services also qualify.

Sports (RM1,000). The sports relief now covers sports shoes, up to RM300.

Domestic tourism (RM1,000). The relief for entrance fees to tourist attractions and cultural programmes is extended to YA 2027. This follows the extension of Visit Malaysia Year to 2027.

Social Security Organisation (SOCSO) contributions (RM350). The existing relief will cover mandatory contributions to the Self-Employment Social Security Scheme (LINDUNG KENDIRI). This applies to three mandatory sectors, namely passenger transport, goods or food transport and hawkers. An additional relief of up to RM150 is given for voluntary contributions to the Non-Employment Injury Scheme (LINDUNG 24 JAM) and the 17 non-mandatory LINDUNG KENDIRI sectors. For more on how SOCSO contributions work, see my earlier article, EPF, SOCSO & EIS in Malaysia: A Complete Guide for Employers and Employees.

Business Tax

For background on how Malaysian companies are taxed, see my earlier article, Malaysia Corporate Tax: A Practitioner’s Primer.

Lower rates for MSMEs

The preferential rates for MSMEs fall by one percentage point from YA 2027. The first RM150,000 of chargeable income will be taxed at 14% instead of 15%. Chargeable income from RM150,001 to RM600,000 will be taxed at 16% instead of 17%. Income above RM600,000 stays at 24%.

The MSME definition is unchanged. A company qualifies if its paid-up ordinary share capital is RM2.5 million or less and its annual sales do not exceed RM50 million. The same applies to a limited liability partnership with capital contributions of RM2.5 million or less.

An MSME with RM600,000 of chargeable income will save RM6,000 a year. The Government estimates that about 300,000 MSMEs will benefit.

The Chartered Tax Institute of Malaysia (CTIM) welcomed the cut. Its President, Alan Chung, told Bernama on 10 October 2026 that the tax savings will help MSMEs absorb rising costs. He also welcomed the enhanced green technology incentive for “promoting renewable energy, energy efficiency and domestic green technology manufacturing”.

CPA Australia expressed a similar view. Tai Lai Kok, a member of its Malaysia Tax Committee, told INTHEBLACK that “the lower MSME tax rates are a positive step that should help smaller businesses retain more capital”.

Capital allowances

A capital allowance is the tax deduction given for spending on business assets such as machinery and equipment. Small value assets can be written off in full in the year of purchase. The ceiling for each small value asset rises from RM2,000 to RM3,000. Companies that are not MSMEs may claim up to RM30,000 a year on these assets. The previous cap was RM20,000. MSMEs continue to have no overall cap.

The accelerated capital allowance (ACA) lets a company claim the full cost of qualifying assets over two years. It is extended for four years. It applies to capital expenditure incurred from 1 January 2027 to 31 December 2030. It covers heavy machinery, plant and general machinery bought from local manufacturers. It also covers information and communication technology (ICT) equipment, software packages and the costs of developing customised software. The rates remain an initial allowance of 20% and an annual allowance of 40%.

Salary paid in cash will not be deductible

From YA 2028, salary will only be deductible if it is paid through a financial institution or a cashless payment instrument permitted under the Employment Act 1955. MSMEs are exempt. Other expenses are not affected.

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The Government stated that the aim is to improve transparency and curb the employment of undocumented foreign workers. Larger employers that still pay some wages in cash have until YA 2028 to change their payroll process.

New and expanded deductions

• Employers that repay National Higher Education Fund Corporation (PTPTN) loans on behalf of employees can claim a deduction for repayments made from 1 January 2027 to 31 December 2028. The employer must not recover the amount from the employee. The employee must be full-time. The employee must not be the owner of the business or related to the employer. Employers should also consider how these repayments are taxed in the employee’s hands.
• Companies that run Bakat MADANI training programmes can claim a deduction from 29 June 2026 to 31 December 2030.
• Contributions of food and equipment to the Dapur Siswa MADANI programme will be deductible from 1 January 2027 to 31 December 2030.
• Contributions to public universities, including from alumni and companies, will be deductible up to 10% of aggregate income. Aggregate income is the total of a person’s statutory income from all sources, after deducting business losses brought forward but before current-year business losses and donations.
• The School Public Contribution Fund (TSUWAS) can now be used for administrative and operating costs, repairs, equipment and student programmes. Cash contributions remain deductible up to 10% of aggregate income. Applications to set up a fund must be made to the Inland Revenue Board of Malaysia (IRBM), known locally as Lembaga Hasil Dalam Negeri, with endorsement from the Ministry of Education.
• Wholly Malaysian-owned automotive vendors that relocate to the Automotive Hi-Tech Valley in Tanjong Malim can deduct up to RM5 million of relocation costs incurred from 1 January 2027 to 31 December 2030.

Reinvestment allowance under review

The Government is reviewing the reinvestment allowance. This includes the eligibility conditions and how the incentive is granted. The Government stated that the aim is to make it more targeted. No details were given. Manufacturers that rely on this allowance should watch for further announcements.

Tax Incentives

Global Services Hub

The Global Services Hub (GSH) incentive rewards companies that run regional management and support functions from Malaysia. The revised incentive applies to applications received by the Malaysian Investment Development Authority (MIDA) from 1 January 2027.

• A new company pays 5% on its GSH income. A new company is one that has not carried out GSH or Principal Hub activities.
• An existing GSH or Principal Hub company pays 15% on income up to its base income. It pays 5% on income above that base. Base income is the average income of the last three years.
• The incentive is granted in five-year blocks up to a maximum of 30 years. Each renewal depends on the company’s performance and commitments.
• The company must provide three core services. These are a regional profit and loss or business management unit, strategic business planning and corporate development. It must also provide at least two qualifying activities from strategic, business or shared services.
• Income from treasury fund management can now be exempt. Companies that run cash pooling through onshore intermediaries get two further benefits. The first is an exemption from withholding tax on interest paid to non-residents. Withholding tax is the tax a payer must deduct before paying certain income to a non-resident. The second is a full stamp duty exemption on foreign currency loan agreements between group companies. Both benefits also extend to the Johor-Singapore Special Economic Zone (JS-SEZ) incentive package.

EY Malaysia notes in its Take 5 for Business that the current maximum incentive period is 10 to 15 years. In EY’s view, the longer tenure provides greater certainty for multinational groups deciding where to locate regional hubs.

Green technology

The green technology incentives are extended to 31 December 2030. However, they are narrower and more targeted.

For projects, Tier 1 now covers green hydrogen and ocean thermal energy conversion. These keep a 100% Green Investment Tax Allowance (GITA). The GITA is an allowance on qualifying capital spending that can be set off against statutory income. Statutory income is a company’s business income after allowable expenses and capital allowances. The set-off is limited to 70% of statutory income, except for some Tier 1 projects, which can set off up to 100%. Tier 2 covers electric vehicle charging stations and renewable energy systems using biomass, biogas, mini hydro, geothermal or wind energy. These now receive a 60% GITA. Integrated waste management and solar no longer qualify as projects. The Green Income Tax Exemption (GITE) for solar leasing is not extended beyond applications received by 31 December 2026.

For assets bought for the company’s own use, the qualifying list is now prescribed. Tier 1 (100% GITA) includes selected commercial vehicles, locally produced electric vehicle infrastructure, locally produced waste and water recycling systems, and integrated renewable energy systems with battery or energy storage. Tier 2 (60% GITA) covers similar assets that are not locally produced and standalone renewable energy systems. Green buildings and energy efficiency assets no longer qualify. Companies must apply to the Malaysian Green Technology and Climate Change Corporation (MGTC) within 24 months of buying the asset.

Shipping

The full income tax exemption for Malaysian shipping companies is extended from YA 2027 to YA 2036. New conditions apply. Strategic management and effective control must be in Malaysia. Each Malaysian ship must have annual operating expenditure in Malaysia of at least RM250,000. The company must also employ at least four Malaysian citizens for each ship, with an average monthly salary of RM15,000.

Stamp duty on loans to buy or build Malaysian ships will be capped. The cap is RM2,000 for loans up to RM100 million and RM5,000 for larger loans.

Islamic finance and capital markets

• The exemption for Shariah-compliant fund managers is extended from YA 2028 to YA 2030. However, the exempt portion falls from 60% to 40% of statutory income.
• Issuance costs of Sukuk Prisma will be deductible from YA 2027 to YA 2030. Sukuk Prisma is a new Securities Commission Malaysia (SC) framework for sukuk that fund sustainability projects.
• Grants under the Sustainable and Responsible Investment (SRI) Sukuk and Bond Grant Scheme will be exempt from tax from 1 January 2027.
• The incentives for equity crowdfunding investors and angel investors are extended to investments made up to 31 December 2030.

Other incentives

• The exemption for organising international incentive trips, conferences and trade exhibitions is extended from YA 2028 to YA 2030.
• A Multi-Family Office model will be introduced in Forest City. It will allow licensed fund managers to serve several families, including approved Single Family Office funds.
• The Federal Government will begin formal negotiations with the Sarawak Government on the incentive framework for the Sibu Special Economic Zone.

Indirect Tax

There is no change to the main SST rates. For an overview of how the SST works, see my earlier article, Malaysia’s Sales and Service Tax (SST): A Practitioner’s Introduction.

Deloitte Malaysia’s Indirect Tax Leader, Tan Eng Yew, observes that the much-discussed hybrid SST and goods and services tax model did not appear. In his view, this “suggests that the Government needs more time before embarking on a broader consumption tax redesign”. Instead, the Budget makes targeted adjustments.

Sales tax refund for traders. Manufacturers can already buy certain machinery, spare parts, equipment and inputs free of sales tax. However, this only applies when they import directly or buy from a registered manufacturer. From 1 January 2027, local traders and distributors that supply these goods to manufacturers can claim a refund of the sales tax they paid. The inputs covered are those for pharmaceutical products, animal feed, fertilisers and pesticides. Deloitte Malaysia notes that the facility addresses the sales tax costs that local traders and distributors currently cannot recover.

Elderly care. From 1 January 2027, elderly care services move to a new item under the service tax rules. The rate falls from 8% to 6%. Care fees of up to RM96,000 per person per year are exempt if the provider is registered under the Care Centres Act 1993 or the Private Aged Healthcare Facilities and Services Act 2018.

Duty-free islands. From 1 January 2027, visitors to Langkawi and Labuan can bring out up to RM10,000 of new goods free of import duty and sales tax after a stay of at least 48 hours. Tyres and tubes, alcoholic beverages, cigarettes and other tobacco products, smoking pipes and vapes are excluded. The list of Langkawi-made goods exempt from import duty is also expanded. The treatment for Tioman, Pangkor and Pulau 1 Forest City is unchanged.

Entertainment duty. The reduced entertainment duty rates in the Federal Territories are extended to 31 December 2030. Tickets for local films and local theatre in the Federal Territories will be fully exempt from 2027 to 2030. Events at Stadium Merdeka and Stadium Negara will also be exempt.

Stamp Duty

An instrument of transfer is the legal document that transfers ownership of a property.

First homes. Malaysian citizens buying their first home continue to receive a full exemption on loan agreements and instruments of transfer for homes priced up to RM500,000. Homes priced up to RM750,000 now also qualify. The first RM500,000 is fully exempt and the balance is 50% exempt. This applies to sale and purchase agreements signed from 1 January 2027 to 31 December 2030.

Abandoned housing projects. The full exemption for rescuing contractors, developers and original buyers is reintroduced from 1 January 2027 to 31 December 2030. The project must be certified by the Ministry of Housing and Local Government.

Foreign currency loans. Stamp duty on foreign currency loans is currently 0.5% of the loan amount. From 1 January 2027, the duty on such loans from banks in Malaysia will be capped at RM2,000 for loans up to RM100 million and RM5,000 for larger loans. For a RM100 million loan, the duty falls from RM500,000 to RM2,000.

MSME financing. Stamp duty above RM10 will be waived on the following:

• Peer-to-peer loans between MSMEs and investors signed from 2027 to 2030.
• Second-tier supplier financing agreements between mid-tier companies and banks for MSME suppliers signed from 2027 to 2030. The supplier must not be related to the mid-tier company.
• CAKNA I agreements, extended to 31 December 2030, and CAKNA II agreements, reintroduced from 2027 to 2030. CAKNA is a Government financing scheme for MSMEs and small contractors with Government contracts.

Bank accounts. Instruments for opening savings and current accounts will be fully exempt from 1 January 2027.

Separately, the Stamp Duty Self-Assessment System will apply from 1 January 2027 to instruments transferring real property that do not require a valuation by the Valuation and Property Services Department (JPPH). The remaining instruments follow from 1 January 2028. Under self-assessment, the taxpayer works out and pays the duty, rather than waiting for the IRBM to assess it. Conveyancers and property buyers should be ready for this change.

Beyond Tax: Wages, Social Protection and Business Support

Several non-tax measures will also affect employers and households.

• Minimum wage. The minimum wage rises from RM1,700 to RM2,000 a month from June 2027. MSMEs with annual sales below RM50 million are exempt. The Government will also introduce a minimum wage of RM2,500 a month for semi-skilled workers and graduates.
• Gig workers. The Government will match 35% of SOCSO contributions by e-hailing (ride-hailing) and p-hailing (parcel delivery) workers. This rises to 50% if the platform also contributes. Self-employed people in the 17 non-mandatory sectors get a 70% match. E-hailing and p-hailing drivers also get matching Employees Provident Fund (EPF) contributions of up to RM600 a year, with a lifetime cap of RM6,000.
• EPF registration. Every citizen will be registered automatically as an EPF member at age 18.
• Cash aid. The allocation for Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) rises to RM16 billion.
• Health insurance. The MediAsas plan starts in January 2027. EPF members under 55 can pay premiums from their Sejahtera Account. Small and medium enterprises with fewer than 75 employees get a first-year premium subsidy of RM200 per employee, for up to 50 employees.
• Financing. Total loan and financing guarantee facilities rise from RM50 billion to RM57 billion. Syarikat Jaminan Kredit Perumahan (SJKP) will provide up to RM20 billion in housing financing guarantees.
• Talent. From 1 January 2027, the spouse of a Category I Employment Pass holder who holds a Dependant Pass can work in Malaysia, subject to conditions.
• Governance. The Government Procurement Act comes into force in 2027. An E-Commerce Bill will also be tabled at the next Parliament sitting.

What to Watch

For taxpayers and advisers, several points need attention.

The parliamentary timetable. The Budget is presented through the Supply Bill (2027). According to Bernama, Members of Parliament will debate it at the policy stage over eight days. Ministers will wind up the debate from 26 to 29 October 2026. The committee stage will run from 2 to 26 November 2026.

The Finance Bill and gazette orders. The tax measures take legal effect through a separate Finance Bill and subsidiary legislation. At the time of writing (14 October 2026), the Finance Bill had not been published. The final details may differ from the Budget announcements. The ACA announced in Budget 2026 is a useful reminder. Deloitte Malaysia points out in its Budget 2027 Snapshot that the relevant gazette order had still not been issued. It also calls for clarity on whether “local manufacturers” includes locally based manufacturers owned by foreign companies.

Payroll processes. Larger employers should review how they pay wages before YA 2028. Cash salary payments will no longer be deductible.

High-income individuals. Individuals with chargeable income above RM1 million will pay the 30% rate on the excess from YA 2027. They may wish to review their income and remuneration planning.

Green technology and reinvestment allowance. Companies planning solar, waste management or green building investments should check whether their projects still qualify. Manufacturers should watch the review of the reinvestment allowance closely.

Regional hubs. Groups considering regional headquarters, treasury or shared service centres should model the new GSH terms. The longer incentive period and the treasury exemptions may change the business case.

Personal record-keeping. Individuals should keep receipts for the new relief items. These include confinement care, children’s tuition, AI subscriptions, pet care and sports shoes.

The IRBM’s National Tax Seminar. The IRBM is holding its National Tax Seminar online on 14 and 21 October 2026. It explains the Budget 2027 tax proposals and other recent tax developments. Speakers include representatives from the MOF, the IRBM, CTIM and the Malaysian Association of Tax Accountants. The seminar also covers the e-Invoice Special Voluntary Disclosure Programme and stamp duty requirements. (Link: https://heal.hasil.gov.my/public-event/seminar-percukaian-kebangsaan-spk?session=FG9TFCPJ-S2)

No major new tax was introduced. Instead, the Budget makes a large number of targeted changes. Each taxpayer will need to look at the measures that apply to them.

Did this article assist you to understand better the changes in this area and the following actions needed? We welcome you to share it with colleagues, associates, or family members who may find it of value. Should you identify any inaccuracies, have questions, or wish to suggest topics for future articles, please leave a comment below.

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Disclaimer: This write-up provides a general overview of the Malaysia Budget 2027 tax and policy announcements and it is for informational and educational purposes only. It does not constitute tax, legal, or financial advice. Tax regulations are subject to regular amendments and individual circumstances vary. Readers should consult a qualified tax professional or advisor for guidance specific to their circumstances.