BUDGET 2027 themed “Reaching to the Sky, Rooted in the Earth” is the fifth national budget of the Madani government, which will be tabled in Parliament this coming Oct 9.
The budget stance should balance fiscal prudence with inclusive economic support, aiming for sustained policy continuity and a clearly articulated economic vision shaped by resilience, structural reforms and measured responses to evolving global uncertainty and domestic conditions.
The budget must continue to signal a steady, fiscal consolidation governance driven approach that reduces national deficits and government debt while safeguarding vulnerable populations, accelerating skill development, business facilitation and funding high-growth and high-value future sectors like semiconductors, energy transition, the digital economy, artificial intelligence (AI) and Islamic finance, while widening access to financing, technology and overseas markets.
As Malaysia approaches the 16th General Election due by the first quarter of 2028, it is anticipated that Budget 2027 will be an “Election Budget” – a people-centric and business-friendly budget by balancing populist financial aid (goodies) and developmental priorities with long-term fiscal consolidation.
Overall, we expect the government to set a fiscal deficit target of 3.3% of gross domestic product or GDP for 2027 (estimated 3.5% to 3.6% of GDP in 2026) on projected real GDP growth of 4.5% to 5.5% for 2027 (estimated 5.1% in 2026).
Gross development expenditure is budgeted at RM85bil for 2027 (estimated RM79bil in 2026).
Malaysia faces a highly geo-economic fragmentation and fractured ecosystem, which disrupted trade and investment flows, raw materials and supply chains.
New technologies drive up global needs for capital, skilled workers, energy and critical minerals.
The resilient headline GDP growth of 5.7% year-on-year in the first half of 2026 marks an uneven pace of growth, reflecting a structural divergence where high- technology sectors such as electronics and electrical products and AI-driven data centres outpaced consumption-facing retail domestic sectors, with the middle-and lower-income families still struggling with rising cost of living.
Micro, small and medium enterprises (MSMEs) face severe profit squeezes from high operational expenses, as well as intense competition from foreign-run businesses and global online platforms.
Easing cost of living pressure, sustaining consumption resilience
A dual approach of targeted financial assistance and structural economic reforms is essential.
An increase in allocation for Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah estimated at RM15bil to RM16bil to ease cost of living pressure is also essential.
Middle-income earners are facing a relentless financial squeeze due to their wages lagging behind the rising cost of living.
Many face an early high tax burden in their career progression and stagnated personal reliefs since 2010, leaving them disproportionately burdened by increasing costs.
It is proposed that the government reduce income tax rate for the chargeable income bracket between RM70,000 and RM100,000 from 19%, to 15% to 16%.
Another proposal is to restructure the threshold chargeable income band between RM100,000 and RM400,000 by introducing a lower sub-tier band between RM100,000 and RM200,000 at 20% to 22% to increase personal, dependents tax relief, as well as the Employees Provident Fund and insurance relief.
Reform tax system for resilience, competitiveness
Small and medium enterprises (SMEs) need financial relief.
It is suggested that the government raise SMEs’ preferential tax threshold to the first RM500,000 of chargeable income (at 15%) from RM150,000 and the next RM500,000 up to RM1mil (at 17%) from RM450,000. There must be an increase in allocation for various funds at a reasonable cost of borrowing to support SMEs.
It is also proposed to exclude SMEs from the proposed 2% tax on profit distributions to individual partners and limited liability partners (LLP) to protect their cash flow during early growth stages and avoid discouraging the use of LLP structures that support entrepreneurship.
Investment in the high-tech equipment and AI fixed assets should be encouraged by increasing Reinvestment Allowance/Investment Tax Allowance and set-off rates of up to 80% of a company’s statutory income, and extend the Accelerated Capital Allowance until 2030.
The lack of a comprehensive input-tax exemption for the registered sales and service tax (SST) entities creates a “tax-on-tax” cascading effect. This increases business costs, lowers profit margins, dampens cost competitiveness, and ultimately raises final consumer prices.
The Finance Ministry is looking into a study of a proposed hybrid tax system combining features of the goods and services tax into the existing SST.
In the meantime, there can be a consideration to expand the list of intermediary goods exempted from the sales tax.
Reforms in taxation, statutory contribution administration
Inflexible CP204 rules requiring an 85% minimum tax estimation, combined with chronic overpaid tax refund delays, lock up vital working capital and penalise businesses for unforeseen economic volatility.
It is proposed that the government lower the CP204 estimation threshold to 50% (from 85% presently) to allow for a realistic mid-year adjustment, implement an automatic tax offset mechanism for delayed refunds and suspend penalties arising from forecasting inaccuracies.
It is also suggested to reform tax administration to mandate strict timelines for appeals and refunds, enforce accountability for arbitrary assessments, and penalise errant officials addressing core taxpayer grievances. Implementing these measures reduce locked-up capital, curbs harassment, and restores trust in the tax system.
It is recommended to suspend the EPF’s enforced mandatory 2% employer and 2% employee contributions for non-Malaysian workers. The government can also consider to lower the service tax rate on non-residential rental and leasing services for MSMEs from 6% to 4%.
Additionally, the annual sales exemption threshold for SME tenants can be increased from RM1.5mil to RM3mil.
The government can also review and update the definition of SMEs (last revised in 2013, more than a decade ago) to reflect current economic conditions and business scale changes, so that mid-tier companies are not unintentionally excluded from SME-related incentives and support measures.
Mitigating the impact of foreign online platforms
The Cabinet has announced that Malaysia will strengthen oversight of eCommerce platforms.
We propose the following regulatory measures and mandatory registration requirements for eCommerce platforms to safeguard consumer safety, address unfair competition, and curb unregulated cross-border sales.
> Tax harmonisation to close loopholes on low-value goods and review import thresholds for the overseas factory-to-consumer goods facing the same tax burdens as local retail goods.
> It is proposed to reduce the de minimis threshold for import duty from RM500 to RM50 to remove unfair price advantages.
> Tighter checks on direct-to-consumer parcels to prevent untaxed, non-compliant foreign goods from flooding the domestic markets.
> Set minimum price limits for certain imported goods sold directly by foreign sellers to shield domestic producers from ultra-cheap items.
> Enforcing strict import rules, requiring foreign business models to use official local distributors rather than direct-to-consumer shipping.
> Mandating platform accountability. These include requiring high-volume online sellers exceeding a prescribed sales threshold (for example, RM1mil annually) to be registered as a Malaysian business entity and appoint a local representative responsible for regulatory compliance and consumer protection matters.
Online platforms would be mandated to prominently display safety and health certifications for safety-critical products.
> There should be an establishment of a Malaysian Authenticity Portal where consumers and mechanics can verify product certification by scanning a QR code; and design frameworks to hold overseas platform operators liable under local standards and require authorised local representation.
> Enhancing and increasing funding allocations for SME e-trade platforms like Matrade’s eTRADE 2.0 to cover rising digital advertising and platform subscription expenses.
> It is also recommended that the government relaunch the Digitalisation Grant with a higher ceiling and allow multiple claims to support phased technology adoption, partnering with the development financial institutions and the SME Bank to embed trade invoice financing and working capital loans directly into e-trade portals for instant working capital.
Cross-cutting business enablers
One recommendation for the exports market expansion is that the government could lift the Market Development Grant lifetime cap from RM300,000 to RM500,000, raise the per-claim ceilings higher to RM35,000 for international trade fairs and RM10,000 for local exhibitions, and introduce a tiered structure with a higher rate for SMEs and a lower rate for mid-tier enterprises.
As for the property sector, raising the eligibility threshold for first-home ownership incentives from RM500,000 to RM700,000 is another recommendation.
We also suggest removing the Real Property Gains Tax on corporate property disposals from the sixth year onwards.
It would be benefical to introduce an automatic bumiputra quota release.
As for the entertainment sector, repealing the outdated Entertainments Duty Act 1953 to generate stronger economic returns through increased visitors’ spending and enhanced tourism appeal, while continuing to provide safe leisure and recreational venues for families would be welcomed.
Meanwhile, in the event planning industry, the government can introduce co-investment grants and a national bidding fund, enhancing tax incentives for organisers and venue upgrades, and exempt key business event services from the service tax.
The government can introduce a 70% income tax exemption tier for mid-sized events with lower participant thresholds for at least five years.
As for the plastic industry, the government can enhance circular economy and export competitiveness by expanding the Green Investment Tax Allowance (Gita) incentives for recycling and waste management, setting recycled content targets and standards, and introducing tax credits to promote the use of recycled content in plastic products.
The government can also provide SST relief for plastic traders, stockists, collectors, sorters and extended producer responsibility compliance fees to ease structural cost pressures across the recycling value chain.
On the green transition, the government can implement a full SST waiver on solar equipment and exemptions for industrial energy-efficient machinery (such as pumps and compressors). The goverment can also extend Gita through Assessment Year 2030 and reinstate direct interest and profit rate subsidies under the Green Technology Financing Scheme.
Providing soft loans or co-funding to bridge the financing gap for high-cost green assets is another option.
High value agrofood integrated policy
The agrofood sector continues to face interconnected trade and production imbalances, the availability of resources (longer-term tenure land and financial assistance), fragmented smallholder operations, low technology adoption, environmental issues, and structural factors.
The government should continue prioritising the opening up of additional land for agrofood cultivation, including the systematic reuse of vacant and idle agricultural lands, particularly in areas with strong logistics connectivity.
Moreover, it can introduce a state-level key performance index framework to monitor each state’s contribution towards expanding agrofood land that will strengthen accountability.
The government can also consider releasing 100,000ha to 200,000ha annually for crop cultivation, livestock farming, aquaculture and biotechnology activities.
An allocation of 1% of total forest cover, equivalent to 179,300ha for integrated farming systems, can combine modern crop cultivation, livestock rearing and aquaculture into a single, interconnected ecosystem.
Lee Heng Guie is the executive director of the Socio-Economic Research Centre. The views expressed here are the writer’s own.
