BUDGET 2027 meets expectations by prioritising the wellbeing of the rakyat, increasing disposable income and reducing the fiscal deficit from 3.6% in 2026 to 3.3% in 2027. No new taxes were introduced, while the Sales and Service Tax remains largely unchanged, easing concerns over the proposed hybrid Goods and Services Tax.
The Budget provides benefits across all segments of society, including students, parents, senior citizens, civil servants, farmers, fishermen, gig workers and lower-income households. Higher-income earners also stand to benefit through fuel subsidy measures.
As expected, support for the B40 continues through Sumbangan Tunai Rahmah, with an additional RM200 under Sumbangan Asas Rahmah. School students will receive RM200, while Form 6 students will receive RM2,400 annually.
The M40 group will welcome the increase in individual tax relief from RM9,000 to RM12,000, the first revision since 2010. Further relief is provided for children’s tuition fees and expenses incurred in caring for parents and grandparents, with the scope now extended beyond medical expenses.
Overall, money has been put into the pockets of practically most people in this country which increases their disposable income and gives them a feeling of a “feel good” factor. This is normally expected when elections are approaching.
Growth is not compromised
The SME sector is the biggest employer and employs about 50% of the Malaysian workforce of approximately eight million people. To strengthen resilience and support growth, SMEs will benefit from a reduced tax rate of 14% on the first RM150,000 of taxable income and 16% on the next RM450,000. Smaller businesses with annual turnover below RM50 million are also exempted from implementing the minimum wage.
Additional measures to help the business sector is the increase in the small value assets eligible for capital allowance from RM2,000 to RM3,000 for each asset. To increase the productivity of local companies, accelerated capital allowance claim for the local plant and machinery as well as the information and communication technology equipment and software has been extended until 2030.
To attract multinational corporations to establish regional headquarters in Malaysia, the Global Services Hub Incentive has been enhanced, offering a preferential tax rate of 5% for a period ranging from five to 30 years.
To encourage the growth of the shipping industry in Malaysia, full tax exemption is granted to Malaysian shipping companies, subject to specific conditions.
The Budget has incentivised tourism through the expansion of visitors to Langkawi and Labuan who stay more than 48 hours to buy duty-free goods. Income tax exemptions have also been given for event organisers organising international incentive trips, conferences and trade exhibitions in Malaysia.
Overall observations
Budget 2027 is the largest in Malaysia’s history at RM459.8 billion, raising the inevitable question of how it will be funded. Direct taxes administered by the Inland Revenue Board of Malaysia (IRB) are expected to contribute RM200 billion, representing 43.5% of total revenue, while indirect taxes collected by the Royal Malaysian Customs Department (RMCD) account for RM97 billion, or 21.1%. The remainder will be derived from non-tax revenue sources.
Given the absence of new taxes despite higher revenue targets, taxpayers can expect both IRB and RMCD to intensify compliance and enforcement efforts. Greater use of data analytics and cross-referencing of information from platforms such as e-invoicing, e-filing, e-stamp duty and e-CKHT is likely to enhance the authorities’ ability to identify underreported income and taxpayers operating outside the tax system.
At the same time, various voluntary disclosure and settlement initiatives remain available, offering opportunities for taxpayers to regularise their affairs with reduced or waived penalties.
While stronger enforcement is necessary to improve tax compliance and protect government revenue, greater emphasis should also be placed on identifying participants in the shadow economy. This would help ensure that the tax burden is shared more equitably, rather than placing disproportionate pressure on compliant taxpayers while non-compliant taxpayers continue to benefit from public services and incentives without contributing their fair share.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).