Michelle Chuo, tax partner of PwC Malaysia.
As Malaysia charts its economic course towards inclusive and sustainable growth, Budget 2026 offers a critical opportunity to future-proof the country’s personal tax system.
With wage growth, digitalisation, and social equity at the forefront of national priorities, recalibrating tax policies to adapt to new economy and better support middle and lower-income earners is both timely and necessary.
Below are some ways this could be done.
Adapting tax system for remote workers, gig economy
A graphic designer based in Kuala Lumpur with two gigs and a remote client abroad spends more time guessing her tax status than growing her income. She’s not alone; the platform economy is now a mainstream employer.
If we want to be perceived as a respected, leading regional startup and digital hub, our tax rules need to speak the language of modern work.
Establishing clear criteria to differentiate gig workers from employees will help eliminate confusion around tax obligations and ensure fair treatment. Implementing simplified tax compliance frameworks tailored for freelancers, startups, and remote professionals will encourage greater compliance and ease administrative burdens.
Additionally, offering targeted tax reliefs or deductions for expenses such as home office equipment, digital subscriptions, and professional development will provide meaningful support to this evolving workforce.
The recently passed Gig Workers Bill is a welcome first step that offers protections for gig workers and signals the government’s commitment to modernising work policies. Building on this momentum with clear tax guidance and tailored reliefs would further support the sector.
Rationalising tax brackets, personal reliefs for B40, M40
To promote sustainable wage growth and expand access to higher-income opportunities, it would be timely to revisit and adjust the tax rates for income brackets between RM70,000 and RM150,000.
This would provide meaningful relief to middle-income earners and incentivise income growth, aligning with Malaysia’s broader economic objectives.
The current personal tax relief cap of RM9,000 has remained unchanged for over a decade.
To keep pace with rising living costs and household expenditures, particularly among the B40 and M40 groups, Budget 2026 offers a prime opportunity to enhance disposable incomes by raising the personal relief ceiling specifically for B40 and M40 taxpayers.
These targeted measures would help reduce income inequality and strengthen the purchasing power of Malaysia’s lower and middle-income households.
Promoting retirement savings
As of July 31, only 38.3% of Employees Provident Fund (EPF) contributors aged 18 to 55 have met the basic savings requirement, indicating a shortfall in retirement savings.
To promote retirement savings, Budget 2026 could consider increasing tax relief limits for voluntary contributions to EPF and private retirement schemes.
This enhancement could motivate more individuals to save proactively for retirement, fostering financial resilience.
Leveraging e-invoicing for automated claims
With the phased implementation of the nationwide e-invoicing system for businesses scheduled to start July 1, 2026, there is significant potential to further digitalise personal tax administration.
To future-proof the personal tax system, the government could further harness this digital infrastructure by enabling automatic validation and claiming of eligible personal tax reliefs tied to e-invoices, such as medical expenses, education fees, and lifestyle-related purchases.
Automating these claims would reduce compliance costs, improve accuracy, and expedite tax refund processing.
Furthermore, integration with digital tax portals can offer taxpayers real-time insights into their relief entitlements, empowering them to make informed financial decisions.
Budget 2026 can lay the groundwork for a tax regime that is progressive, equitable, and future-ready.
If Malaysia wants to enjoy the benefits of higher wages, stronger savings, and a thriving workforce, it is imperative that the personal tax framework evolves in step with Malaysia’s dynamic economy and diverse population – ensuring that prosperity is both shared and sustained for generations to come.
Michelle Chuo is a tax partner with PwC Malaysia. The views expressed here are the writer’s own.
