Budget 2025: Key Insights
- ThinkTx
- Oct 21, 2024
- 12 min read
Updated: Jun 17
Table of Contents
Our Prime Minister and Finance Minister unveiled the 2025 Budget to the Parliament on 18th October 2024. The Government is confident that the Budget will further advance Malaysia's vision of Ekonomi MADANI, built upon a collaborative effort involving all sectors of the nation. This TaxSphere highlights the key tax implications of the Budget.
PROMINENTS
Dividend Tax
Introduction of a new tax on annual dividend income exceeding RM100,000 to be taxed at 2% on individual shareholders effective Year of Assessment (YA) 2025. Dividend income below this threshold will remain tax-free.
Exclusions from this would be dividends or profits from EPF, ASNB or any unit trusts. Exemptions would be for dividend income from abroad, close-end funds, exempted shipping companies, and those received by residents from Labuan entities.
Sales Tax Exemption and Expansion of Service Tax Scope
Sales tax to increase for non-essential items such as imported premium goods, and the scope of service tax to be expanded to include commercial service transactions between businesses. This is effective from 01st May 2025.
E-Invoicing Related Expenditure
Businesses to be allowed to claim accelerated capital allowances from 3 years to 2 years for YA 2024 and 2025 for e-Invoicing qualifying expenditure such as purchase of ICT equipment, computer software packages and consultation fees for maximum utilization within 2-years period.
Foreign Source Income
The given tax exemption for resident individuals on income derived from overseas sources received into Malaysia until 31st December 2026 is proposed to be extended to 2036 for another decade.
Individuals who have satisfied taxes on the said income overseas will be exempted in Malaysia.
CORPORATE TAX
Tax Incentive for Smart Logistics Complex (SLC)
To encourage the adoption of advanced technologies in logistics, the Government proposed a tax exemption for SLCs effective from 01st January 2025 to 31st December 2027. Eligible SLCs (includes investors and operators) can claim tax exemption on 60% of qualifying capital expenditure for 5 years. This exemption can be used to offset up to 70% of their annual statutory income. To qualify, SLCs must: -
Invest in or lease a smart warehouse of at least 30,000 square meters.
Provide eligible logistics services (e.g., regional distribution, integrated logistics, hazardous goods storage, or cold chain).
Implement at least three Industrial Revolution 4.0 elements (AI, IoT, Blockchain).
This incentive aims to enhance supply chain efficiency and promote economic growth.
Tax Incentive for Employers
Implementing Flexible Work Arrangements (FWA) The Government is proposing a new tax incentive to encourage employers to implement FWA. Under the Budget proposal, employers will be eligible for 50% further deduction for expenses incurred in implementing FWA. This deduction is capped at RM500,000 and can be claimed once by employers who apply to Talent Corporation Malaysia Berhad for 3 years between 01st January 2025 to 31st December 2027.
This incentive will encourage more employers to offer FWA, such as allowing employees to work from home or to have flexible working hours. This will help to promote work-life balance for employees and improve their overall job satisfaction.
Tax Incentive for Employers Providing Caregiving Leave Benefit
To promote job retention and support employees facing caregiving responsibilities, the Government has introduced a significant tax incentive.
Employers offering additional paid leave of up to 12 months are eligible for a 50% additional tax deduction for employees caring for: -
Children; or
Ill or disabled family members.
Employers may apply for this tax benefit through Talent Corporation Malaysia Berhad for the next 2 years, starting from 01st January 2025.
Tax Incentive for Hiring Women Returning to Work
To boost women's participation in the labour market, a proposal has been made to provide employers with a 50% additional tax deduction on employment expenses incurred over a 12- month period for hiring women returning to work. This incentive may be applied to Talent Corporation Malaysia Berhad from 01st January
2025 to 31st December 2027.
Tax Incentive for Hiring Disabled
Person (OKU) and Ex-Convict Employers will be given incentive of RM600 monthly for 3 months, under supervision of SOCSO.
Expansion of Further Deduction on Child Care Allowance
Effective from YA 2025, the deduction provided to employers on child care allowance paid by employers to employees will be expanded to include elderly care for parents or grandparents.
Organizations Approved Under Section 44(6) of the Income Tax Act 1967 (ITA 1967)
Payment of salaries and wages for teaching staff by organizations with approved educational objectives, to be allowed as charitable expenditure.
To expand the scope of tax exemption for charitable organizations to include contributions to affected non-citizens.
Tax Incentive for Increased Exports
In line with the New Industrial Master Plan (NIMP) 2030, Malaysia is poised to become a premier hub for advanced Integrated Circuit (IC) design technology. Effective from 01st January 2025, the Government will expand export incentives for IC design services.
This strategic move aims to create a more attractive tax environment, luring skilled talent, fostering innovation, and driving the growth of the IC design industry.
By nurturing a vibrant ecosystem, Malaysia can attract foreign investment, facilitate technology transfer, and promote innovation in this strategic sector.
Tax Incentive for Automation
Businesses involving in manufacturing, services, agriculture and commodity sectors that incur capital expenditure in relation to automation will be given tax incentive of accelerated capital allowance of 1 year, allowing full claim within one-year period, and income tax exemption is provided equivalent to the capital expenditure incurred.
Tax Incentives for Carbon Capture, Utilization and Storage (CCUS) Activities
Businesses undertaking CCUS activities will be provided with tax incentives such as investment tax allowances or income tax exemptions in accordance with the new investment incentive framework.
Global Minimum Tax (GMT)
GMT on Multinational Enterprises (MNEs) under Pillar 2 of BEPS 2.0 will be implemented to maintain a minimum effective tax rate of 15% in all countries where it operates. This appliestolargeMNEswithannual consolidated group revenue of at least €750 million, beginning on or after 01st January 2025.
To assist in mitigating the effects of GMT beginning in 2025, the Government will: -
Streamline current incentives;
Develop new non-tax incentives; and
Explore the possibility of introducing a “Strategic Investment Tax Credit (SITC)”.
STAMP DUTY
Implementation of Self-Assessment System for Stamp Duty
It is proposed that Self-Assessment Stamp Duty System (STSDS) to be implemented in phases based on the type of instruments or agreements as follows:
Phase | Effective Date (From) | Type of Instruments |
1 | 01ˢᵗ January 2026 | Instruments or agreements related to rental or lease, general stamping and securities. |
2 | 01ˢᵗ January 2027 | Instruments of transfer of property ownership. |
3 | 01ˢᵗ January 2028 | Instruments or agreements other than stated in Phase 1 and 2. |
Stamp Duty Exemption on Loan or Financing Agreements Through Initial Exchange Offering (IEO) Platform
Full stamp duty exemption for agreements executed by Micro, Small and Medium Enterprises (MSMEs) from 01st January 2025 to 31st December 2026 through IEO platforms registered with Securities Commission Malaysia.
Review of Stamp Duty on Assignment of Life Insurance Policy and Family Takaful Certificate
It is proposed that the deed of assignment (executed from 01st January 2025) for life insurance policy and family takaful certificate given by way of love and affection or through a trustee, be subject to stamp duty as follows:
Ownership Transfer Value | Current | Proposed (w.e.f. 01ˢᵗ January 2025) |
First RM100,000 | 1% | RM10 |
Above the first RM100,000 to RM500,000 | 2% | RM100 |
Above RM500,000 to RM1,000,000 | 3% | RM500 |
More than RM1,000,000 | 4% | RM1,000 |
Review of Stamp Duty on Loan or Financing Agreements Based on Shariah Principles
To streamline the imposition of stamp duty on loan or financing agreements for the purchase of goods based on Shariah principles except for hire purchase, it is proposed that the loan or financing agreements, be subjected to a fixed stamp duty as follows:
Current | Proposed (w.e.f. 01st January 2025) |
0.5% | RM10 |
Revision of Stamp Duty Exemption on Loan or Financing Agreements for Skim Pembiayaan Mikro (SPM)
It is proposed that the loan or financing agreements under SPM for MSMEs are exempted from stamp duty as follows:
Current | Proposed (w.e.f. 01st January 2025) |
Amount up to RM50,000 | Amount up to RM100,000 |
Expansion of Scope of Income Tax Exemption for Islamic Financial Activities Under the Labuan International Business and Financial Centre (IBFC)
As an initiative to attract investments in the Islamic finance sector driven by digital technology at the IBFC, it is proposed that the full income tax exemption granted to Labuan trading entities that undertakes Islamic finance activities for a period of 5 years (YA 2024 to 2028), be expanded from YA 2025 to include:
No. | Labuan Trading Entity | Qualifying Activities |
1 | › Labuan insurer › Labuan reinsurer › Labuan takaful operator › Labuan re-takaful operator | Takaful and re-takaful businesses that comply with Shariah principles: › risk management; or › product development |
2 | › Labuan captive insurer › Labuan captive takaful | Takaful and re-takaful businesses that comply with Shariah principles where takaful participants are related companies or associated companies or as approved by the Labuan Financial Services Authority: › risk management; or › product development |
3 | › Labuan underwriting manager › Labuan underwriting takaful manager | Provides underwriting services including administration related to Labuan takaful business |
4 | › Labuan insurance manager › Labuan takaful manager | Provides management or administrative services related to Labuan takaful business |
5 | › Labuan insurance broker › Labuan takaful broker | Provides services such as: › arrange Labuan takaful and re-takaful business; or › financial analysis |
OTHER INITIATIVES
Extension of Rebate for Purchase of Electric Motorcycles
The Government has implemented tax incentives to encourage the adoption of Electric Vehicles (EVs) and to promote their local assembly, making it more competitive with traditional gasoline-powered vehicles. Incentives are provided for locally assembled EVs, known as Completely Knocked Down (CKD) vehicles.
The Government will continue to provide rebate of up to RM2,400 for the purchase of locally assembled electric motorcycles, with an allocation of RM10 million.
Forest City as Duty Free Island Incentive
The Government has designated Forest City as a duty-free island to stimulate tourism and local economic growth. To further promote financial services activities such as global business services and FinTech, they have also introduced a tax incentive package for the Forest City Special Financial Zone (FCSFZ).
To enhance the investment landscape in Malaysia, a Single Family Office tax incentive scheme was announced by the Government on 20th September 2024. A concessionary corporate tax rate of 0% is to be given on income generated by eligible investments from a corporate vehicle, namely Single Family Office Vehicle (SFOV).
Others such as 5% corporate tax rate for financialglobalbusinessservices,15%personal income tax rate for individual knowledge workers, and special tax deductions on relocation costs, enhanced industrial building allowances, and withholding tax exemptions to be provided for banking, insurance, and other eligible entities in the financial sector.
Enhancement of Technical and Vocational Education and Training (TVET) by Human Resource Development Corporation (HRD Corp.)
Employers are allowed to utilize the levy to finance allowances of up to RM1,000 yearly for graduates including skill training programmes through HRD Corp.
Extension of Double Deduction for Structured Internship Programme (SIP)
The double deduction on expenditure incurred in implementing SIP under Talent Corporation Malaysia Berhad will be extended to YA 2030, and expanded to include students undertaking structured training conducted by industry regulatory bodies.
Tax Deduction on the Cost of Developing New Courses at Private Higher Education Institutions and Private Skills Training Institutions
Proposed that effective YA 2025 to 2030, full tax deduction is allowed within the same YA for:
Private Higher Education Institutions: Development of new courses in relation to digital technology, AI and innovation.
Private Skills Training Institutions: Development of technical and vocational education and training courses.
Tax Deduction on New Equipment and Machineries Donated to Public Skills Training Institutions, Polytechnics and Vocational Colleges
From YA 2025 to 2027, tax deduction will be provided for companies donating new equipmentand machineriestoregisteredpublic skills training institutions, polytechnics and vocational colleges.
Extension of Tax Deduction for Sponsorship of Smart AI Driven Reverse Vending Machine
It has been proposed to extend the tax deduction allowed under Subsection 34(6)(h) of the ITA 1967 for businesses that make contributions or sponsorships of Smart AI Driven Reverse Vending Machine for 2 years from 01st January 2025 to 31st December 2026. Application to be made to the Ministry of Finance.
Supply Chain Resilience Initiative
This initiative is proposed to be introduced allowing double deduction for expenditure incurred by MNEs up to RM2 million annually for 3 consecutive years. MNEs or their vendors that jointly invest in other local vendors will be given income tax deduction on the amount invested in the joint venture initiative. Local vendors participating in this initiative will be provided with an outcome-based tax incentive package.
INDIRECT TAX
Sales Tax Exemption and Expansion of Service Tax Scope
A progressive tax structure will be implemented to higher-priced food items, such as avocado and salmon fish. The exact tax rates for different categories of premium and imported food items have not been officially announced. It is expected to be released closer to the implementation date.
Essentially, basic food items will be completely exempted from sales tax. Thus, essential items such as rice, flour, sugar, cooking oil and other staple foods will not be subjected to sales tax.
Meanwhile, in relation to the proposed inclusion of commercial service transactions between businesses into the taxable scope of service tax, this means that businesses may be required to satisfy service tax on a wider range of services that they provide to other businesses.
Sales Tax Exemption on Mastectomy Bra for Breast Cancer Patients
It is proposed to reduce the sales tax rate on mastectomy bras for breast cancer patients from 10% to 0%. This exemption aims to ease the financial burden on women who have undergone a mastectomy. Mastectomy bras are specially designed for women who have had breast removal surgery.
This exemption will be available for applications submitted to the Ministry of Finance between 01st November 2024 to 31st December 2027.
Review of Excise Duty Rate on Sugar Sweetened Beverages
As part of the Government’s “war on sugar”, it is proposed that the excise duty on sugar sweetened beverages including carbonated drinks with added sugar or other sweeteners be increased in phases starting from 01st January 2025 at RM0.90 per litre.
Review of Export Duty Exemption on Crude Palm Oil (CPO)
It is proposed that the export duty on CPO be adjusted. The export duty will gradually rise from 8% to 10% when the CPO market price exceeds RM3,450 per metric tonne effective 01st November 2024. For CPO prices below RM3,450, the current export duty rate will remain unchanged. Below is the export duty table as follows:
CPO Market Price (RM) | Export Duty Rate | |
Current | Proposed | |
< 2,250 | NIL | NIL |
2,250 – 2,400 | 3.0% | 3.0% |
2,401 – 2,550 | 4.5% | 4.5% |
2,551 – 2,700 | 5.0% | 5.0% |
2,701 – 2,850 | 5.5% | 5.5% |
2,851 – 3,000 | 6.0% | 6.0% |
3,001 – 3,150 | 6.5% | 6.5% |
3,151 – 3,300 | 7.0% | 7.0% |
3,301 – 3,450 | 7.5% | 7.5% |
> 3,450 | 8.0% | N/A |
3,451 – 3,600 | N/A | 8.0% |
3,601 – 3,750 | N/A | 8.5% |
3,751 – 3,900 | N/A | 9.0% |
3,901 – 4,050 | N/A | 9.5% |
> 4,050 | N/A | 10.0% |
Review of Threshold Value for Windfall Profit Levy
The windfall profit levy is proposed to remain at 3%, however the threshold for its application on the production of Fresh Fruit Bunches (FFB) will be raised from the current level to RM150 per metric tonne beginning from 01st January 2025. This levy will be imposed when the market price of CPO exceeds the threshold, and the specific rate will be adjusted accordingly:
Location | Threshold of CPO Price (RM/metric tonne) | |
Current | Proposed | |
Peninsular Malaysia | 3,000 | 3,150 |
Sabah and Sarawak | 3,500 | 3,650 |
Introduction of Carbon Tax
Businesses in the iron and steel, and energy industries will be imposed with carbon tax by the year 2026. This tax is a market-based mechanism that imposes a cost on the emission of Greenhouse Gases (GHGs).
Businesses within these sectors will be required to pay a tax based on their carbon emissions.
This effectively puts a price on carbon, making it more expensive to emit GHGs. By imposing a carbon tax, the Government aims to encourage these industries to invest and adopt to low-carbon technologies and practices.
PERSONAL TAX
Medical Expenses for Self, Spouse or Child
Maximum limit RM10,000
Assessment of intellectual disability diagnosis and early intervention programme for child aged 18 years and below: Limit to be increased from RM4,000 to RM6,000.
Medical and mental health examination and Covid-19 detection test:
Scope to be expanded to include: -
Full medical or mental health check-up or consultation;
Purchase of self-test kit for Covid-19 and Influenza;
Purchase of self-testing medical devices such as glucometer, pulse oximeter, blood pressure monitor and thermometer; and
Fees for disease detection examination conducted at clinic or hospital, such as blood test, ultrasound, mammogram and pap smear.
Effective from YA 2025
Disabled Person
Disabled individual: Limit to be increased from RM6,000 to RM7,000.
Disabled spouse: Limit to be increased from RM5,000 to RM6,000.
Unmarried disabled child: Limit to be increased from RM6,000 to RM8,000.
Effective from YA 2025
Sports Equipment and Activities for Self, Spouse or Child
Maximum limit RM1,000
Scope to be expanded to include parents.
Effective from YA 2025
Medical Treatment, Special Needs and Parental Care Expenses
Maximum limit RM8,000
Full medical check-up for parents (limited to RM1,000): Scope to be expanded to include vaccination
Parental care scope: To be expanded to include grandparents for expenses
in relation to: -
Medical treatment at clinics and hospitals;
Treatment and homecare nursing, day care centres and residential care centres;
Dental treatment not including cosmetic dental treatment; and
Full medical check-up and vaccination (limited to RM1,000).
Effective from YA 2025
Child Care Allowance
Income tax exemption (RM3,000 yearly) for child care allowance received by employees: Scope to be expanded to include elderly care for parents or grandparents.
Effective from YA 2025
Private Retirement Schemes (PRS) and Deferred Annuities
Maximum limit RM3,000
Relief to be extended for 5 years.
Extended to YA 2030
Education and Medical Insurance
Limit to be increased from RM3,000 to RM4,000.
Effective from YA 2025
Net Savings in Skim Simpanan Pendidikan Nasional (SSPN)
Maximum limit RM8,000
Relief to be extended for 3 years and may be claimed by either parent on net annual savings, inclusive of any withdrawals to finance education costs for further studies.
Effective from YA 2025
Housing Loan Interest Payment for First Residential Home
It is proposed that relief on the interest payments for first residential homeloan (either individually or jointly owned) as follows:
Price of Property | Tax Relief Per Year |
Up to RM500,000 | RM7,000 |
Above RM500,000 to RM750,000 | RM5,000 |
Subject to conditions:
Property must not be used to generate any income;
Sales and Purchase Agreement (SPA) must be executed from 01st January 2025 to 31st December 2027;
Applicable for 3 consecutive YA, commencing from the first year the housing loan interest is paid;
Two or more individuals are eligible to claim this relief for the same residential home based on the apportionment of interest payment.
Effective for SPA executed between 01st January 2025 to 31st December 2027
Child Care Fees to a Registered Child Care Centre or Kindergarten for Child Aged 6 Years and Below
Maximum limit RM3,000
Relief to be extended for 3 years.
Extended to YA 2027
Purchase of Domestic Food Waste Composting Machine
Scope of relief on expenses for charging facilities of EV: To be expanded to include purchase of food waste composting machines for household use, with the relief limit remaining at RM2,500.
May be claimed once within 3 YAs.
Effective from YA 2025 to 2027
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