Written by Lim Tse Hwei and Ashley Yip.
In our previous article, we discussed the proposed taxes for the 2025 Budget. This article aims to review the tax highlights of the Finance Bill tabled in the Malaysian Parliament on 18th October 2024 as part of the 2025 Budget.
The Inheritance Tax was not included in the 2025 Budget despite being the subject of much discussion prior to the tabling of the Budget. The following highlights introduced some changes to the tax landscape in Malaysia:
1. Dividend Tax:
- A new 2% tax will be levied on dividend income distributed by resident companies exceeding RM100,000 for individual shareholders (resident individuals, non-resident individuals and individuals holding shares through nominees).
- Tax deductions will not be available for expenses related to the first RM100,000 of exempted dividend income.
2. Carbon Tax:
- The Malaysian Government plans to introduce carbon tax on iron and steel, and energy industries by 2026. The proceeds from the taxation will be used to fund more green research and technology programs.
3. Global Minimum Tax (GMT) / “Top-up Tax”:
- GMT is a global tax reform to ensure that multinational companies pay at least 15% tax in each jurisdiction they operate in, regardless of where they operate.
- GMT applies to “MNE” groups – groups consolidated for financial accounting purposes, operating in at least two jurisdictions and with an annual group revenue of at least €750 million in at least two of the four preceding fiscal years.
- The first in line in IRB’s timeline for the implementation of GMT in Malaysia are the MNE Groups with a consolidated financial statement period beginning on/after 1st January 2025.
4. Excise duty on sugar sweetened beverages:
- Instead of the highly-anticipated, all-encompassing Unhealthy Food Tax, the 2025 Budget saw an increase of the existing tax on sugar-sweetened beverages by RM0.40 per litre to RM0.90 per litre.
- The increase takes effect from 1st January 2025 in phases.
The 2025 Budget also introduced and improved a variety of tax incentives and deductions for the benefit of the country with its theme of “Reinvigorating the Economy, Driving Reforms and Prospering the Rakyat”:
- Use and development of Artificial Intelligence (“AI”): Targeted tax incentives for companies offering high-salary jobs in fields such as AI and data science.
- Training & investment in Artificial Intelligence (AI): Special tax deductions for companies which develop new courses or engage in emerging technologies in training (AI, robotics etc), or engage in research and development to create AI-driven products or services.
- Women workforce: Employers hiring women who return to the workforce after a career break (implementing flexible work arrangements and granting paid caregiver leave) will be able to receive an additional tax deduction of up to 50% for applications received by the Talent Corporation Malaysia Berhad from 1st January 2025 to 31st December 2027.
- Work From Home: Employers who incur expenses for capacity building and to acquire software in order to implement flexible work arrangements will be eligible for 50% tax deductions, capped at RM500,000 for applications received by the Talent Corporation Malaysia Berhad from 1st January 2025 to 31st December 2027.
- Sales and Service Tax (SST): To be expanded to include Business-to-Business commercial service transactions and non-essential items effective 1st May 2025.
- Stamp Duty: 100% exemption on stamp duty for loan or financing agreements executed by Micro, Small and Medium Enterprises and investors using the Initial Exchange Offering (IEO) platform registered under the Securities Commission Malaysia until 31st December 2026.
- Exports: Tax exemptions up to 70% on statutory income for companies achieving incremental export growth, equivalent to 50% of the value of increased exports for selected service sectors (legal, accounting, architecture, marketing, business consultancy, office services, construction management, building management, plantation management, private education, publishing, printing, information technology and communication, engineering and local franchise).
- Child / Elderly Care Allowance: Tax deduction on child care allowance paid by employers to employees expanded to include elderly care of parents or grandparents.
- E-Invoicing: Expenses for investing in e-invoicing systems, equipment and consultations can receive an Accelerated Capital Allowances, claimable from YA 2024 to YA 2025:
- Purchase of ICT equipment and computer software package at an initial allowance of 20%; and
- Consultation, licensing and incidental fees related to customized computer software developments at an annual allowance of 40%.
- Housing Loan Interest Relief: Reintroduced tax relief for first-time home buyers of up to RM7,000 per year for residential homes priced below RM500,000 OR up to RM5,000 per year for residential homes priced from RM500,000 to RM750,000. Relief can be claimed for three consecutive years from the first year the interest is paid. Sale & Purchase Agreement must be executed from 1 January 2025 till 31 December 2027. Property must not be used to generate income.
- Education & Medical Insurance Premiums: Increased from RM3,000 to RM4,000.
- Medical Expenses: Increase of up to RM6,000 for medical expenses for self, spouse and child, and to expanded to include disease detection fees.
- Medical Treatment & Carer expenses: Relief of up to RM8,000 expanded to include elderly care for parents and grandparents resident in Malaysia, and to include vaccination expenses.
- Sports Equipment & Activities: Relief of up to RM1,000 expanded to include expenses incurred for parents resident in Malaysia.
- Hire purchase of equipment & electric vehicles: Relief of up to RM2,500 expanded to include purchase of food waste composting machine for household use (claimable once every three years) from YA 2025 to YA 2027.
- Nursery or Kindergarten Fees: Extension of tax relief of up to RM3,000 for parents obtaining childcare and early education services for children until YA 2027.
- Disabled Person: Increase of tax incentive from RM6,000 to RM7,000 (taxpayer), RM5,000 to RM6,000 (spouse) and RM6,000 to RM8,000 (unmarried child).
- Savings for Tertiary education: Extension of tax relief of up to RM8,000 on net annual savings in the National Education Savings Scheme until YA 2027.
- Private Retirement Scheme (PRS): Extension of tax relief on PRS contributions until YA 2030.
- Sports Prizes: Cash prizes received by athletes through the Victory Prize Scheme Sports are exempt from income tax.
- Mastectomy Bra: 10% sales tax exemption on mastectomy bras for breast cancer patients for applications received by the Ministry of Finance from 1st November 2024 to 31st December 2027.
In conclusion, the 2025 Budget reflects the Malaysian Government’s commitment to inclusive policies that aim to uplift marginalized communities, enhance healthcare and promote a better quality of life for all Malaysians. The hope and expectation are that the 2025 Budget will create a lasting impact on the communities that matter by reducing disparities and fostering a more inclusive society.
For more in-depth information on the 2025 Budget please read the speech here or contact Lim Tse Hwei.