Malaysia’s 2025 budget: Revitalising growth, advancing reforms, and empowering the people
V. Venkatachalam
by V. Venkatachalam
Malaysia’s Budget 2025 signifies a transformative step forward with an unprecedented allocation of MYR 421 billion, underscoring the nation’s dedication to sustainable development, economic resilience, and citizen welfare. With MYR 335 billion designated for operational expenditures and MYR 86 billion for developmental projects, this budget represents the government’s strategic focus on optimising resources for maximum impact.
Aiming to balance fiscal sustainability and economic expansion, the government projects a reduction in the fiscal deficit to 3.8% while increasing revenue to MYR 340 billion. The transition from universal to targeted subsidies marks a pivotal shift, ensuring resources reach those in greatest need, while paving the way for equitable growth and financial stability.
Key financial highlights
GDP growth
Malaysia’s post-pandemic economic trajectory reflects resilience and adaptability. Following a 3.3% growth in 2021 and a peak of 8.7% in 2022, GDP growth moderated to 3.6% in 2023. Projections for 2024 and 2025 are optimistic, with estimated growth rates of 4.8% to 5.3% and 4.5% to 5.5%, respectively. These figures underscore Malaysia’s steady recovery and robust economic potential.
Fiscal deficit
The fiscal deficit as a percentage of GDP has been progressively narrowing, from 6.4% in 2021 to an expected 3.8% in 2025. This improvement highlights effective fiscal management and a commitment to long-term economic stability.
Tax reforms and incentives
Corporate tax innovations
The introduction of the Global Minimum Tax (GMT) effective 01 January 2025, targets large multinational corporations (MNCs) and signals Malaysia’s alignment with international tax standards. While enhancing tax revenue, the government is mindful of maintaining Malaysia’s competitiveness as an investment destination by refining tax incentive structures and introducing non-fiscal incentives. A Strategic Investment Tax Credit (SITC) is also under consideration to mitigate potential challenges.
Key tax reforms include:
Extended tax deductions: Sponsorships for AI-driven reverse vending machines, and hiring women re-entering the workforce are incentivised.
Accelerated capital allowances (ACA): Revised allowances for information and communication technology (ICT) equipment and software to encourage e-invoicing adoption.
Support for technical institutions: Deductions for contributions to technical and vocational education, and promoting skills development.
Digital economy taxation
The expansion of the Sales and Service Tax (SST) to digital services, and increased compliance measures for foreign digital service providers reflect the government’s intent to harness revenue from the rapidly growing digital economy. These measures aim to bolster fiscal sustainability while encouraging fair competition in the digital marketplace.
Green initiatives and sustainability taxes
Promoting eco-conscious practices, Budget 2025 includes:
Taxes on single-use plastics and high-emission industries;
Incentives for renewable energy projects and energy-efficient technologies; and
Enhanced tax reliefs for individuals investing in green technologies like electric vehicles (EVs) and solar panels.
Individual taxation: Reliefs and reforms
Dividend taxation
A 2% tax will be imposed on dividend income exceeding MYR 100,000, effective 01 January 2025. Exemptions apply to dividends from foreign sources, pioneer-status companies, and specific investment funds, ensuring equitable implementation.
Housing loan relief
First-time homeowners can benefit from housing loan interest relief, with up to MYR 7,000 for properties valued under MYR 500,000, and MYR 5,000 for homes valued between MYR 500,000 and MYR 750,000. This initiative supports homeownership and alleviates financial burdens.
Expanded reliefs for caregiving
Tax exemptions for childcare allowances have been extended to include elder care for parents or grandparents. This reflects the government’s commitment to supporting family-oriented financial reliefs.
Digital nomad and freelancer incentives
Acknowledging the evolving workforce, special provisions ease tax compliance for remote workers and freelancers, encouraging their contribution to the digital economy.
Driving investments and economic growth
SMEs and startups
Small and medium enterprises (SMEs) continue to receive robust support through lower corporate tax rates and incentives for modernisation and innovation. These measures aim to fortify the backbone of Malaysia’s economy.
Tourism sector revival
Tax breaks and allowances for eco-tourism and cultural tourism initiatives highlight the government’s strategy to reinvigorate this vital sector. This includes extending tax exemptions to boost tourism-related investments and activities.
Technological advancement
Initiatives like the double tax deduction under the Structured Internship Program (MySIP) until 2030 emphasise the government’s focus on workforce development and technological readiness.
Balancing direct and indirect taxation
Direct taxes
Corporate and personal income taxes remain central to government revenue, consistently contributing over 50% of total revenue. Recent adjustments, such as progressive brackets for high-income earners, reinforce the commitment to equitable wealth distribution.
Indirect taxes
With the SST playing a pivotal role, indirect taxation diversifies revenue streams. The expanded SST on luxury goods and digital services, alongside increased excise duties on carbon-heavy vehicles and tobacco products, reflects efforts to promote sustainability and public health.
Strategic contributions and long-term goals
Environmental and social impact
The budget’s focus on green taxes and social relief measures aligns with Malaysia’s sustainability goals. These efforts aim to reduce environmental degradation and support vulnerable populations.
Infrastructure development
With MYR 86 billion allocated to developmental projects, the government is committed to critical infrastructure improvements to drive economic growth and enhance quality of life.
Global competitiveness
By addressing the complexities of the GMT and refining investment incentives, Malaysia is positioning itself as a resilient and attractive hub for international businesses.
Conclusion: Building a sustainable future
Budget 2025 encapsulates Malaysia’s commitment to balanced growth, fiscal responsibility, and the welfare of its people. Through comprehensive reforms, targeted investments, and strategic incentives, the government aims to create a sustainable and equitable economic landscape. As Malaysia moves forward, Budget 2025 stands as a testament to the nation’s vision for a brighter, more inclusive future.
V. Venkatachalam is a Fellow of the Association of Chartered Certified Accountants (FCCA), member of the Malaysian Institute of Accountants (MIA), a Fellow of the Chartered Tax Institute of Malaysia (FCTIM), a Chartered Member of the Institute of Internal Auditors Malaysia. (CMIIA). He has been in practice for more than 30 years and currently pursuing his doctorate.Contact V.
Ahmad Abdullah & Goh, Chartered Accountants in Malaysia, is a fully diversified practice providing accounting, auditing, taxation, corporate secretarial services, liquidation, winding up, receivership, employment pass for expatriates and business consulting services. The Firm was involved in several privatization projects of the Malaysian Government and regularly carries out audit of statutory bodies on behalf of the Auditor General Malaysia.
GGI member firmAhmad Abdullah & GohJohor Bahru, Kuala Lumpur, Penang, Labuan, MalaysiaT: +60 3 2202 0885
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