Farah Rosley, Malaysia Tax Leader, Ernst & Young Tax Consultants Sdn Bhd – photo credit – EY
By TNS News Team
KUALA LUMPUR, OCT 20 – Malaysia’s Budget 2025, the nation’s largest ever at RM421 billion, seeks to revitalize the economy, catalyze transformative change, and improve the well-being of the Rakyat. The budget balances fiscal resilience with strategic investments, navigating global economic challenges while laying the foundation for long-term growth and sustainability.
Fiscal Sustainability and Economic Growth
The government reaffirms its commitment to fiscal discipline in Budget 2025, underpinned by the Public Finance and Fiscal Responsibility Act enacted in December 2023. Farah Rosley, Malaysia Tax Leader at Ernst & Young Tax Consultants, praises these efforts, stating, “The continued emphasis on reducing the fiscal deficit and national debt levels is a necessary and urgent action.”
Subsidy Rationalization
The rationalization of the RON95 petrol subsidy, slated for mid-2025, mirrors the approach taken with targeted electricity subsidies, ensuring that 85% of households remain unaffected.
Farah notes, “The savings from this exercise will be channeled towards public welfare, reflecting a strategic approach to subsidy management.”
Broadening the Tax Base
Although the Goods and Services Tax (GST) is not being reintroduced, Farah said, the government aims to broaden the tax base through a 2% tax on dividend income above RM100,000 and the expansion of the Sales Tax and Service Tax (SST) to cover more services and non-essential goods. She emphasizes, “Involving stakeholders in the SST scope expansion will smoothen implementation and help avoid unintended consequences.”
Targeted Tax Measures
New tax policies, including a carbon tax on the iron, steel, and energy sectors starting in 2026 and an increased excise duty on sugar-sweetened beverages from January 2025, are designed to fund green technology programs and public health initiatives. These measures illustrate the government’s innovative approach to revenue generation.
Attracting Investments
The New Investment Incentive Framework (NIIF), focusing on high-value activities, is set for implementation in Q3 2025. “This targeted approach will attract the right kind of investments, especially in sectors like AI, electronics, and ESG-driven projects,” asserts Farah.
Global Minimum Tax (GMT)
The introduction of GMT rules could affect Malaysia’s investment landscape. To address this, the government plans to streamline tax incentives and introduce a “Strategic Investment Tax Credit.” Farah explains, “This credit, structured as a Qualified Refundable Tax Credit, will give Malaysia a competitive edge in the global market.”
Public Service Reforms
She noted, reforms in public service are set to reduce bureaucracy, expedite processes, and enhance service delivery, aligning with ongoing efforts to improve Malaysia’s business environment and global competitiveness.
Redistributing Income and Reducing Inequality
Increasing the minimum wage to RM1,700 and enhancing cash assistance programs are key measures aimed at narrowing the wage gap and supporting lower-income households. “These initiatives demonstrate the government’s commitment to reducing inequality and supporting the Rakyat,” comments Farah.
Workforce Incentives
Incentives for employers to hire women reentering the workforce, implement flexible work arrangements, and offer additional paid caregiving leave are expected to boost female labor force participation. Farah predicts, “These measures will accelerate the upward trend in female labor force participation, contributing to a more inclusive economy.”
Addressing Regional Economic Disparities
Special tax rates in 21 economic sectors across various states are intended to reduce regional disparities. Additional financing facilities for women, youth, and persons with disabilities show Malaysia’s commitment to equitable development.
Strengthening the Digital Economy and AI Adoption
Budget 2025 includes initiatives to bolster the digital economy and accelerate artificial intelligence adoption, positioning Malaysia as a leader in the digital era. “These measures will propel Malaysia to the forefront of the digital economy,” says Farah, stressing the need for digital skills development.
Advancing Industry Digitalization
Incentives for using drones and AI in plantation management, along with investment tax allowances for Smart Logistics Complexes, aim to stimulate growth in key areas. Farah concludes, “These initiatives highlight Malaysia’s commitment to maintaining a competitive edge in the digital age.”
According to Farah, Budget 2025 is a testament to Malaysia’s decisive policymaking and dedication to steering the nation towards a sustainable, resilient, and competitive future.
By catalyzing growth in key sectors, implementing strategic tax reforms, and prioritizing social equity, the budget is designed to benefit the Rakyat while reinforcing the country’s economic foundation.
“We look forward to the positive outcomes these initiatives will bring to the nation.,” she added