PwC Statement – Budget 2025

Budget 2025 represents the government’s day in the sun, having navigated through the economic challenges of the past few years. On the back of positive economic sentiments, evidenced by strong economic growth in recent quarters, manageable inflation rates and a robust Malaysian Ringgit performance against the US Dollar, the government is well-positioned to craft sustainable strategies to further fuel the economy in Budget 2025.

This Budget also introduces commendable initiatives aimed at addressing the cost of living for both the B40 and M40 groups, such as the cash handout programmes and numerous personal tax relief enhancements. For the tax fraternity, Budget 2025 represents a period of consolidation following Budget 2024's introduction of the Low-Value Goods Tax, Capital Gains Tax and e-Invoicing, along with the continuation of measures like the Global Minimum Tax. These measures collectively provide a strong foundation for economic resilience, support for families and streamlined tax administration.

Expanding Malaysia's revenue base

It was pleasing to note that there were no major new taxes being introduced in Budget 2025, giving businesses a breather after the multiple changes introduced in Budget 2024. Nevertheless, there were some measures that focus on expanding Malaysia’s revenue base scattered throughout the speech.

The proposal to expand the scope of Sales and Service Tax (SST) by 1 May 2025 to include fee-based financial services and non-essential food items applies a progressive lens, and the introduction of a 2% tax on dividend income exceeding RM100,000 for individual shareholders aims to broaden the tax net on a sustained basis.

The proposed introduction of carbon tax in 2026 on the steel and iron industry addresses environmental concerns and can be seen as Malaysia’s response to the European Union’s Carbon Border Adjustment Mechanism (CBAM). These measures collectively create a more robust and equitable tax system, supporting long-term economic and environmental goals.

Empowering Malaysia's workforce

I regard the Budget 2025 proposals relating to the workforce as a positive stride towards enhancing labour conditions and supporting workforce diversity. The minimum wage increase to RM1,700 with effect from 1 February 2025, with 6 months deferred implementation for employers with less than five employees, acknowledges economic realities while aiming to improve living standards. The proposed introduction of mandatory EPF contributions for non-citizen workers extends social security inclusively, with the phased approach allowing businesses to gradually adapt to the additional financial obligations.

The additional tax deductions of up to 50% for hiring women returning to the workforce, implementing flexible work arrangements and granting paid caregiver leave promote gender equality, technological advancement and work-life balance. These measures offer financial incentives for businesses to build a more resilient, inclusive and supportive workforce, aligning with broader socio-economic goals.

Tax reliefs focusing on care

The Budget 2025 proposals for personal tax relief highlight a theme of ‘care’, focusing on supporting families and catering to the education and healthcare needs of the Rakyat.

The proposed increase in personal tax relief for education and medical insurance from RM3,000 to RM4,000, and the expansion of the scope of the RM10,000 medical expense relief reflect a comprehensive approach to alleviating healthcare costs. Extending the personal tax relief for Private Retirement Scheme (PRS) contributions and deferred annuities to year of assessment (YA) 2030 encourages long-term financial and retirement planning. 

Similarly, the proposed increase in personal tax relief for childcare and early education fees from RM3,000 to RM4,000 eases the financial burden on parents and underscores the importance of early childhood education. Additionally, raising the tax relief for parents caring for disabled children from RM6,000 to RM8,000 provides much-needed support for these families. Lastly, the extension of the National Education Savings Scheme for three more years further encourages savings for higher education. These measures collectively enhance the financial wellbeing of Malaysian families and promote a more inclusive society.

Returning measure for first-time homebuyers

Budget 2025 proposes to reinstate tax relief on interest expenses incurred on housing loans, first introduced in Budget 2009, in a more measured manner. This is certainly a welcome move for the M40 group who look to get on to the property ladder, whilst grappling with the ever-increasing costs of living. 

Positioning Malaysia as the destination for foreign direct investments (FDIs)

With the Global Minimum Tax expected to level the playing field as far as tax incentives are concerned, there is a pressing need to revamp our incentive regime to ensure that we attract high-growth high-value investments that continue to propel us into a high-income nation. 

Budget 2025 tackles the issue in three key proposals: streamlining the existing incentives, introducing non-tax incentives, and the commitment to review the feasibility of a Strategic Investment Tax Credit.

The proposed New Investment Incentive Framework is a step in the right direction, through its focus on value-driving activities as opposed to the current regime’s product-based incentives. We see a marked shift in the approach to attracting investments, through measures designed to enhance diversity of the Electrical and Electronics (E&E) sector and the development of Artificial Intelligence (AI) through special deductions to private tertiary education institutions that provide courses in this field. To bolster confidence in the nation's investment landscape, we observed measures that target to strengthen the local supply chain and ecosystem of key sectors, develop economic clusters across states that play on specific strengths and emphasise on economic spillover effect. 

Conclusion

Overall, Budget 2025 is forward-thinking, riding on the back of positive economic sentiments, because of its focus on progressive tax measures, the Rakyat’s wellbeing and workforce diversification. Nevertheless, certain measures such as the expansion of SST, the introduction of carbon tax and mandatory Employees Provident Fund (EPF) contribution for non-citizen workers will require clarity beyond the proposed implementation date to facilitate preparation for these changes. I am hopeful that the government will provide sufficient time for businesses to get ready for this.

Steve Chia
PwC Malaysia Tax Leader