BUDGET 2027 will be taking place in a landscape that demands complex policy considerations and clear priorities.
Geopolitical tensions in the Middle East have driven crude oil prices up and pushed Malaysia’s fuel subsidy bill to levels that could reach RM40bil or more, while shifts in global trade policy and technology competition have redrawn the investment landscape.
Malaysia has shown it can navigate complexity.
Gross domestic product (GDP) grew 6% in the second quarter of 2026, while the fiscal deficit has narrowed steadily.
The structural reforms pursued since 2023 are yielding results.
Budget 2027 is expected to build on this momentum while addressing the pressures ordinary Malaysians feel most acutely, notably the high cost of living, job market uncertainty, and the quality of public services.
Expectations on tax and fiscal policy
On the corporate tax front, the launch of the New Incentive Framework (NIF) for manufacturing last March marked a decisive shift to an outcome-based, tiered approach that ties incentives to measurable economic contribution beyond sector eligibility alone.
It aligns the incentive regime with the global minimum tax era and the New Industrial Master Plan 2030. The NIF’s extension to services is highly anticipated early next year.
Services account for nearly 60% of GDP and more than 60% of total employment.
A well-designed NIF for services would strengthen both foreign and domestic investment by providing greater certainty on the government’s long-term policy direction.
Local companies in business services, digital, logistics, and financial services need the same outcome-based certainty that their manufacturing counterparts now enjoy.
Budget 2027 can signal that the incentive architecture is fit for a services-driven economy.
Businesses have absorbed a number of new tax measures in recent years: the headline service tax rate was raised from 6% to 8% in 2024 with its scope extended to new sectors in 2025; a 2% dividend tax from the year of assessment 2025 was introduced to individuals; capital gains tax on unlisted shares has been applicable from 2024, and the removal of full exemption on foreign-sourced income for residents made applicable since 2022.
Collectively, these represent significant expansion of the tax base.
Businesses have adapted, but with headwinds from rising costs, minimum wage increases, and geopolitical uncertainty, many would welcome a breathing space from new taxes.
Broadening the base through compliance would produce more sustainable results compared to introducing new taxes as observed from tax digitalisation initiatives which are already bearing fruit.
Since August 2024, e-invoicing has helped uncover RM4.07bil in previously undeclared income, resulting in RM1.009bil in additional tax payable.
The revenue potential from improved compliance, including from the shadow economy, is evident, estimated at about 20% of GDP.
For mergers and acquisitions (M&A) and cross-border investment, Budget 2027 is an important moment.
Introducing specific legislation on M&A tax treatment, including provisions for tax neutrality on qualifying corporate reorganisations, would provide the certainty dealmakers and investors need.
Malaysia has the talent, market access, and institutional capacity to be a stronger regional M&A hub.
Certainty through specific tax policies and rules that match ambition will be key.
The broader fiscal picture also merits attention.
The deficit has narrowed steadily with a target of 3.5% in 2026 and below 3% in the medium term under the Public Finance and Fiscal Responsibility Act.
Federal debt has eased to 63.1% of GDP – bringing it below 60% will require sustained discipline.
The shift from blanket subsidies to targeted assistance has generated estimated savings of RM15.5bil a year, but heightened energy prices may reduce the fiscal benefits of these reforms.
Budget 2027 can be a springboard in redirecting fiscal space to areas with the greatest impact on the rakyat, including direct cash transfers, social safety nets, and healthcare.
The rakyat’s expectations are high, centred around personal tax relief and workforce development.
The personal tax relief of RM9,000, which has been in effect since year of assessment 2010, could be updated to preserve the purchasing power of taxpayers, post-tax income.
Continued investment in upskilling, reskilling, and technical and vocational education and training pathways will be critical to ensuring Malaysia’s workforce can move up the value chain and participate meaningfully in higher-income employment.
Boosting resilience and competitiveness
While the postponement of the carbon tax in light of the energy shock is understandable, businesses would benefit from greater clarity on the medium-term carbon pricing roadmap.
Budget 2027 presents opportunities to build on the momentum set by last April’s National Carbon Market Policy launch, by providing an updated implementation timeline.
A well-designed carbon tax, accompanied by special tax deductions or allowances for green technology expenditure, would ensure Malaysian exporters are on an equal playing field with the European Union’s Carbon Border Adjustment Mechanism.
On digital transformation and artificial intelligence (AI), Budget 2026 took a positive first step by introducing an additional 50% tax deduction for micro, small and medium enterprises on AI training.
Budget 2027 is an opportunity to expand the incentive to all businesses and broaden its scope to cover AI adoption expenditure, beyond training.
On stamp duty, with self-assessment now well underway, what businesses need most is simplified legislation.
The current stamp duty legislation is complex and needs to be modernised.
This could be an opportunity for Budget 2027 to introduce a streamlined and updated legislative framework that makes compliance simpler, clearer, and more practical, with an education-based approach to support taxpayers through the transition.
Businesses and taxpayers will be anticipating a budget that balances fiscal discipline with long-term competitiveness.
While addressing immediate concerns such as the cost of living and social protection remains the key agenda, equal attention should be given to investments that strengthen productivity, innovation, and private sector growth.
Building on the key policy foundations already in place, the focus should now be on execution, consistency, and providing certainty for businesses and households to plan for the future confidently.
Steve Chia is a tax leader at PwC Malaysia. The views expressed here are the writer’s own.
