Steve Chia, Tax Leader, PwC Malaysia
THIS year’s budget, the fourth under the Ekonomi Madani framework and the first under the 13th Malaysia Plan, is set against a backdrop of global economic uncertainty, rapid technological changes, and evolving societal needs, but is underpinned by strong domestic consumption and investor confidence in Malaysia’s stability.
At its core, Budget 2026 is expected to reaffirm the Madani commitment to raise the ceiling for national growth, raise the floor for living standards, and drive reform in governance.
There is much expectation for steps that deliver tangible improvements in daily life – better jobs and wages, accessible healthcare, quality education, and a fairer, more resilient society.
Tax and fiscal policy: Broadening the base, targeting support
One of the most closely watched aspects of Budget 2026 will be its approach to tax and fiscal policy.
The government has signalled its commitment to fiscal consolidation, aiming to reduce the deficit to 3% of gross domestic product (GDP) in the medium term under the Fiscal Responsibility Act 2023.
To achieve this, several measures are anticipated:
> Global minimum tax: In line with international standards, Malaysia is set to implement the global minimum tax for multinationals, ensuring that large multinationals contribute a minimum amount of tax.
An update on the outlook of the strategic investment tax credit which was announced during the last budget will be most welcome.
> Taxes: With a slew of taxes that have been introduced in recent years such as the taxability of foreign-sourced income (unless exempted), increase in service tax rate to 8%, capital gains tax on unlisted shares and foreign capital assets, 2% dividend tax for individuals on dividend and the recent expansion of the scope of the sales and service tax (SST), the government has not indicated that they will be introducing any form of new taxes for now save for carbon tax for selected industries which was planned earlier.
As businesses are also facing headwinds from external geopolitics and changes in cost structure resulting from the recent increase in minimum wage and upcoming Employees Provident Fund contribution for foreign workers, many will naturally expect some breathing space on new taxes.
Digitalisation initiatives such as e-invoicing, tax identification number and increase in digital payments are bearing fruit.
From the initial stages, the Inland Revenue Board has reported that some 5,800 taxpayers have been identified for failure to submit tax returns.
Tax audit enforcement from the recent 20 months, supported by analytics, have also raised RM17bil in taxes.
These tools have proven that much can be harnessed from enhancing tax compliance, including from the shadow economy which is generally estimated at about 20% of our GDP.
> Personal taxes: The personal tax relief of RM9,000, which has been in effect since the year of assessment 2010, could be updated to maintain the value of money of taxpayers’ post tax income.
In line with Visit Malaysia 2026, a personal tax relief for domestic travel will be welcomed to stimulate domestic consumption, leading to incremental corporate income tax and SST from the business transactions.
> Stamp duty: With self-assessment set to kick in from Jan 1 2026, we hope that the simplified legislation can be introduced and accompanied by an education-based approach to facilitate compliance and enforcement.
> Targeted subsidies: The shift from blanket subsidies to targeted models will likely continue, with savings redirected to direct cash transfers and social assistance for those most in need or to improve public transportation.
The Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah programmes are expected to continue or be better refined, providing a stronger safety net for vulnerable groups.
> Education: Investing in human capital for the future education is essential for social mobility.
The government has indicated that it is looking at setting up a national education council to drive this agenda. We hope the following areas can be emphasised:
> Strengthening Technical and Vocational Education and Training (TVET) and Science, Technology, Engineering, and Mathematics (STEM) pathways: Expanding TVET and STEM programmes to equip youth with skills aligned to high-growth, high-value sectors.
> Bridging the urban-rural divide: Targeted investments to improve access to quality education in underserved areas, particularly in Sabah and Sarawak.
> Lifelong learning and upskilling: Support for continuous learning and upskilling initiatives, enabling workers to adapt to the demands of the digital and green economies.
> Digital economy: Accelerating innovation and inclusion Malaysia’s ambition to become a regional digital hub is set to receive a further boost in Budget 2026.
The government’s focus on digitalisation goes beyond technology – it’s about creating new opportunities for businesses and individuals alike.
Measures we foresee in the budget include:
> Incentives for digital adoption: Support for micro, small, and medium enterprises to adopt digital tools, access export markets, and enhance productivity.
> Advancing GovTech: Continued investment in digital public services, such as MyVisa 2.0 and MyJPJ, to improve efficiency and accessibility for all.
> National Artificial Intelligence (AI) Plan: The rollout of the National AI Technology Action Plan 2026-2030, positioning Malaysia as a leader in artificial intelligence and data-driven innovation.
Sustainability and carbon tax: Paving the way for a greener economy
Budget 2026 is expected to advance the National Energy Transition Roadmap, with a focus on renewable energy, energy efficiency, and green jobs.
The introduction of a carbon tax or related mechanisms will be closely anticipated. This would align Malaysia with global best practices, incentivise low-carbon investments, and generate revenue for climate resilience initiatives. It also ensures Malaysian exporters to the European Union are on equal playing field with the implementation of the Carbon Border Adjustment Mechanism.
Other expected measures include:
> Support for green industries: Incentives for businesses investing in clean technologies, carbon capture, and sustainable supply chains. We welcome special tax deduction or allowance for expenditure related to green technology.
> Climate-resilient infrastructure: Continued investment in flood mitigation, water treatment, and rural electrification, particularly in vulnerable regions.
As Budget 2026 approaches, the government’s challenge is clear: to deliver a fiscal plan that is both prudent and progressive, and balancing the needs of today with the promise of tomorrow.
For the rakyat, the hope is for a budget that not only addresses immediate concerns — cost of living, jobs, and social protection — but also lays the foundation for higher income jobs; a more inclusive, innovative, sustainable, and united Malaysia.
Steve Chia is the tax leader for PwC Malaysia. The views expressed here are the writer’s own.
