Cost of living pressures remain a real and widespread
concern for Malaysians. Businesses have been facing increased costs across
multiple areas, impacting their operating costs and profit margins, and are
adopting a cautious investment approach. The pressure comes from rising labour
costs, energy prices, raw-material prices, and even increased compliance costs
such as e-invoicing, environmental, social and governance standards, the
expanded sales and service tax, Employees Provident Fund (EPF) contributions
for foreign workers, port charges, and electricity and water tariffs hikes.
The budget’s priorities must be to lift household and
business sentiment, securing social wellbeing, unleashing growth,
infrastructure projects, advancing investment in high-growth high-value (HGHV)
sectors, empowering small businesses, developing workforce skills, the green
and blue economy, fostering youth potential as well as empowering women.
Source: https://belanjawan.mof.gov.my/en/
Target of a fiscal deficit of between 3.3% and 3.5% of
gross domestic product (GDP) in 2026 is likely, a reduction from the estimated
3.8% of GDP for 2025. Gross development expenditure is budgeted to increase by
3.5% to RM88bil 2026 against the RM85bil in 2025. At worst, no change in the
amount (RM85b).
The allocation and distribution of Sumbangan Asas Rahmah
or Sara and Sumbangan Tunai Rahmah assistance is expected to see higher amounts
and improvement benefitting 8.8 million recipients, involving an allocation of
RM15.5bil, against RM13bil in Budget 2025.
The tourism sector, which received nearly RM550mil in
Budget 2025, will be allocated at least RM300mil to RM400mil to boost tourism
for Visit Malaysia Year 2026. The construction sector will benefit from the
people-centred projects, public transportation and infrastructure such as
highways, ports and roads. Home Ownership Campaign 2.0 will be extended to Dec
31, 2026, with first-time home buyers receiving a 100% stamp duty exemption for
properties priced RM500,000 and below. Civil servants, estimated at 1.7 million
or 10.2% of total employment, will enjoy a salary adjustment of 7% in the
second phase of the revised Public Service Remuneration System, costing RM5bil.
Financial assistance payments of RM500 for civil servants in Grade 56 and
below, and RM250 for pensioners is set to cost around RM1bil.
The government will review the mandatory retirement age
from 60, adapting to an ageing population while introducing changes to the EPF
through a new scheme to provide monthly payouts to retirees.
Malaysia’s tax rate (24%) is considered uncompetitive
compared with Singapore (17%), Vietnam (20%), Thailand (20%), and Indonesia
(22%). Why don’t we reduce corporate tax rate to 20% while introducing the
Tobin tax, excess profit tax for a wider group and “prosperity” tax on the top
1% of individuals.
Supporting SMEs comprehensively across multiple fronts is
essential as they form 98.4% of total business establishments. SMEs have
already been burdened with substantial increases in business and operating
costs. Tax relief for first RM2.5m will be helpful and thereafter at 15%.
SMEs’ support should encompass providing accessible and
varied financial instruments like grants and loans for innovation and research,
export capacity, talent acquisition and retention, and sustainability
initiatives and green technology adoption as well as artificial intelligence
(AI).
As Lee Heng Guie suggests, the government can consider
enhancing the Reinvestment Allowance and Investment Tax Allowance by increasing
both the qualifying capital expenditure allowance rate and the percentage of
statutory income to be set off to encourage reinvestment or continued investment.
Review also the matching basis and maximum reimbursable amount of Domestic
Investment Accelerator Fund.
Although tax incentives for research and development are
available in Malaysia, there is room to fine-tune the definitions, qualifying
conditions and approval processes. Offer an enhanced tax deduction for research
and development expenses like Singapore at 250% to 400%, along with capital
gains tax exemptions for investments in innovative startups.
To maintain momentum for solar adoption and renewable
energy, the budget should consider extending the Net Energy Metering (NEM)
programme (up to 300MW for businesses through NEM NOVA; and an additional 150MW
for residential NEM Rakyat users) beyond its June 30 expiry; introduce
financial incentives to accelerate household battery adoption, provide full
exemptions on import duties and sales taxes for key renewable energy
components, including solar panels, inverters, and battery energy storage
systems (BESS); and introduce a Green Personal Tax Relief category for
individuals, allowing tax deductions for new investments in solar panels, BESS,
and electric vehicle charging equipment installed at private residences. The
relief can be structured as RM5,000 per year up to a lifetime cap of RM20,000,
or offered as a one-off RM30,000 tax deduction.
There are many other incentives one could propose but a
comprehensive annual plan must take us on the road to a more developed nation.
That will be the job of a good FM.
Reference:
Budget 2026: Hope in
a time of uncertainty, Lee Heng Guie, The
Star, 12 Sept 2025
