(PIC FOR RAJA) (BRIEF CAPTION) Officers assisting the tax payers at Penang LHDN office in Lebuh Sungai Pinang, Jelutong. ( September 23, 2025 ) —CHAN BOON KAI/The Star
THERE were no major new broad-based taxes introduced in Budget 2026, with the focus instead being on implementing and strengthening existing compliance policy and reforms.
The federal government’s total revenue is projected to rise to RM343.1bil in 2026, driven primarily by stronger tax collections.
Tax revenue is projected to make up about 79% of total revenue. This reflects a higher tax-to-gross domestic product ratio due to enhanced compliance, enforcement and digitalisation efforts.
Whilst there are no key tax reforms and policy shifts, corporate and individual income tax collections are expected to grow due to sustained and enhanced economic activity, wage growth and wider compliance.
Selective reliefs and incentives remain part of the policy mix.
A capital gains tax on disposal of shares and other foreign assets is now part of the landscape.
A 2% dividend tax on individuals is also in effect since 2025 for cumulative dividends exceeding RM100,000 and has been expanded to individuals receiving distributions of profits from limited liability partnerships from 2026 onwards.
Stamp duty moves to a self-assessment regime from Jan 1, 2026, replacing the official system of assessment.
Taxpayers are fully responsible for ensuring compliance with the Stamp Act 1949, including:
> Identifying the dutiable instruments, which in itself gives rise to challenges,
> Accurately computing the amount of stamp duty payable based on the nature of the instrument and transaction value (whether a flat duty of RM10 applies or based on ad valorem rates),
> Submitting the return and paying the duty electronically via the My Tax Portal within the stipulated timeframe, and
> Keeping all stamped instruments and supporting documents for a period of seven years for audit purposes records.
The self-assessment system is being rolled out in three phases.
Phase one from Jan 1, 2026 is for lease agreements, general stamping and securities, followed by instruments for property ownership transfers in phase two from Jan 1, 2027 and for all other instruments from Jan 1, 2028.
There is a need for clear guidelines and policies to be formulated for the implementation of the self-assessment system for stamp duty to be rolled out smoothly.
There is a call for the government to exempt intra-group agreements or instruments of transfer from the imposition of stamp duty, which is being considered by the government.
Effective from Jan 1, 2026 all employment contracts are subject to stamp duty if the salary of the employee is above RM3,000 per month.
Exempted employment contracts still need to be submitted for adjudication.
The government intends to gather data on the workforce to ascertain the proportion that is earning below RM3,000 and to evaluate measures to increase wages as otherwise this could create sustainability issues for a large segment of society.
All written employment contracts are subject to these rules including those for temporary, short-term, part-time or fixed-term positions.
New digital tax stamps have been introduced and a centralised screening complex with the aim to combat smuggling and curb the entry of counterfeit goods into Malaysia have been put in place.
Government agencies such as customs, tax authorities, and anti-corruption bodies are pushing harder on enforcement, which has already led to significant recoveries.
The sales and service tax (SST) expansion measures undertaken in the last couple of years will be fully in force and SST continues to be a major revenue source for indirect taxes.
One of the biggest shifts in 2026 is the administrative and compliance reform involving e-invoicing and digital tools.
E-invoicing is being fully rolled out in 2026 to improve transparency and track transactions in near real time.
Adoption has broadened the taxpayer base and increased digital traceability. To provide for a softer landing of e-invoicing on affected parties, the exemption levels have been raised to RM1mil to provide relief for many small and medium enterprises.
Broader priorities
Tax policy supports broader priorities like sustainability (carbon tax), tourism and strategic industry growth.
Malaysia intends to introduce a carbon tax in 2026 targeting high-emission sectors (like energy and steel) as part of its climate strategy and net-zero emission goals.
Malaysia is also offering tax incentives to support strategic objectives such as domestic tourism with a special individual income tax relief up to RM1,000 for spending on domestic tourism in support of Visit Malaysia 2026.
Tourism project operators registered with the Tourism, Arts and Culture Ministry can claim a tax deduction on qualifying expenditure for renovating and upgrading their business premises, up to a maximum of RM500,000. This incentive is valid for expenditure incurred from Oct 11, 2025 to Dec 31, 2027.
Tax incentives
Other tax incentives include allowances for green investment, artifical intelligence/cyber training for SMEs, and targeted industry support.
From 2026, higher stamp duties for foreign individuals/companies buying Malaysian residential property will apply, doubling to a flat rate of 8% from the previous flat rate of 4%.
In 2026, the focus of the government appears to be to consolidate and implement the various tax strategies and digital tools such as e-invoicing to widen the pool of taxpayers and gather data that would be useful to formulate more effective economic and tax strategies in future.
Harvindar Singh is council member of the Chartered Tax Institute of Malaysia and tax partner of SCS Global Consulting (M) Sdn Bhd. The views expressed here are the writer’s own.
