At a glance
By Aidan Ormond
Malaysia’s Prime Minister and Finance Minister YAB Dato’ Seri Anwar Ibrahim has presented the biggest spending budget in the country’s history with RM421 billion pledged in parliament on Friday October 18.
This budget is the first to have spent over RM400 billion and it includes some new taxes, raising the minimum wage and petrol subsidy cuts.
The government is forecasting that Malaysia’s economy will grow 4.5 per cent to 5.5 per cent in 2025, up from the projected growth rate of 4.8 per cent to 5.3 per cent for the current year.
Government revenue for 2025 is projected to reach RM339.7 billion, representing a growth of 5.5 per cent, largely driven by increases in both direct and indirect tax collections.
Surin Segar FCPA, President of CPA Australia’s Malaysian Divisional Council, says that Malaysia Budget 2025 strikes a balance between stimulating growth, supporting those in need and ensuring long-term fiscal health.
“The focus on targeted subsidies, public-private partnerships, and strategic investments reflects the government's intention to drive economic growth while managing fiscal risks.”
This budget was the final one under the 12th Malaysia Plan (2021-2025) before the 13th iteration begins for the next five years.
Boosting SME competitiveness
To stimulate economic growth, the government has allocated RM 40 billion in business loans and funding guarantees aimed at assisting small and medium-sized enterprises in expanding their operations.
This support will focus on areas including infrastructure development, digitalisation, renewable energy, and energy transition.
Importantly, part of the loan and funding guarantees includes RM650 million allocated to support women and youth become entrepreneurs.
CPA Australia views this as a potential game changer for Malaysia’s economy and is consistent with one of its key recommendations in this year’s Pre-Budget submission.
According to the findings from CPA Australia’s annual Asia-Pacific Small Business Survey, younger business owners are significantly more likely to adopt practices that drive higher growth and be running businesses that are experiencing growth.
This trend is not only evident in newly established businesses. The same trend exists in more established businesses being run by younger owners.
To enhance the digital capabilities of small businesses, the government allocated a further RM50 million to the MSME Digital Matching Grant and the Digital Vendor Grant. This is in line with CPA Australia’s suggestion that the government increase funding for programs designed to enhance the digital capabilities and capacity of small businesses.
Enhancing small business digital capabilities should not only increase the number of small businesses that are growing, but will also unlock other benefits, including better market positioning, the ability to customise products and services, improved talent acquisition, and more.
The Budget also included an announcement to incentivise businesses to adopt e-invoicing. The incentive will allow businesses to claim depreciation on expenditure on ICT equipment, software packages and consulting fees over a shorter two-year period.
This announcement is also consistent with the pre-Budget submission recommendation of more support for e-invoicing adoption for SMEs.
Carbon tax on iron and steel industry by 2026
The tax is aimed at promoting the use of low-carbon technologies with the revenue generated also used to fund green research and technology programs.
Alan Chung FCPA, chair of CPA Australia's Malaysia Tax Committee Chair states, "It’s encouraging that the government has taken the ESG agenda forward with the announcement of the intention to introduce carbon tax.
"The implementation in 2026 will hopefully give sufficient time for engagement with stakeholders to ensure a smooth introduction.
"As part of the consultation, we believe it’s important to provide affected industries with adequate time to adapt to the new tax regime.
"Initially, the carbon tax should be set at a modest rate, with a gradual increase over time to minimise economic disruption and allow businesses to adjust effectively.”
Other important budget announcements related to the environment include:
- 16 billion will be invested by UEM Lestra and Tenaga Nasional Bhd on increasing the transmission and distribution network capacity and to decarbonise industrial areas
- The Green Technology Financing Scheme will be continued with RM1 billion allocation until 2026.
Other budget measures
The government proposes to broaden the Sales and Service Tax (SST). From May 1 next year, SST will be imposed on non-essential items, including imported premium goods and new services such as commercial service transactions between businesses.
On this announcement, Surin says, “This expansion of the SST is an important step toward sustainable revenue generation.
“Earmarking some of the revenue from the SST expansion to enhancing cash assistance programs for the public, as well as improving the quality of education, healthcare services and incentives to look after the aged reflect the government’s commitment to social welfare and economic growth.”
With the increased focus on Malaysia's digital economy, the role of the National Scam Resource Centre and the National Cyber Security Agency is crucial.
Both bodies received additional resources in this Budget. Bolstering these agencies will not only better protect businesses from emerging cyber threats but also foster a safer environment for innovation and the use of artificial intelligence.
The government will establish a Consumer Credit Oversight Board to regulate non-bank credit providers and services, including Buy Now, Pay Later options.
Logistics companies engaged in smart logistics complex activities will receive a 60 per cent investment tax allowance for a period of five years.
It is proposed that first home buyers will receive individual income tax relief on their interest payments.
For houses bought for up to RM500,000, the total tax relief is up to RM7000, while for homes bought for between RM500,000 and RM750,000, the total tax relief is up to RM5000. The relief will apply to eligible people who buy their home from 1 January 2025 to 31 December 2027.
Additionally, there are plans to implement a multi-tier levy mechanism early next year to reduce reliance on foreign labour. Revenue generated from this levy will be redirected to industry to enhance their business processes through automation and mechanisation.
Finally, the government plans to introduce tax incentives and exemptions to encourage high-value investments in sectors such as integrated circuit design, advanced materials, carbon capture utilisation and storage, and energy-efficient technologies.
