Budget 2025 Summary

Malaysian Economic Growth in 2025

The Malaysian economy is projected to grow between 4.5% and 5.5% in 2025. This growth is expected to be driven by a number of factors, including:

Factors Driving Growth:

• Resilient External Sector: Both exports and imports are projected to grow in 2025, albeit at a slower pace than in 2024. Exports are estimated to grow by 3.8% and imports by 3.7%.
• Strong Domestic Demand: Domestic demand is expected to remain robust, fueled by private consumption and investment.
• Private Sector Expenditure: The private sector is anticipated to be the key driver of growth, contributing 5.1 percentage points to the overall GDP growth.
• Third MADANI Budget 2025 Initiatives: The government's budget for 2025, themed "Membugar Ekonomi, Menjana Perubahan, Mensejahtera Rakyat" (Revitalizing the Economy, Generating Change, Prosperous People), includes initiatives aimed at stimulating economic growth.

Key Initiatives Supporting Growth:

• New Investment Incentive Framework (NIIF): This framework, expected to be implemented in Q3 2025, focuses on attracting high-value investments and promoting economic spillover. The NIIF will offer tax incentives to specific sectors and activities, encouraging investment in areas like the digital economy, AI, and renewable energy.
• Smart Logistics Complexes (SLCs): The government is incentivizing investments in SLCs through an investment tax allowance to enhance supply chain efficiency and attract high-value projects.
• Johor-Singapore Special Economic Zone (JS-SEZ): Special incentives will be announced to attract investment and create high-value jobs in this zone, further contributing to economic growth.

Other Factors Influencing the Economic Outlook:

• Inflation: While the inflation rate eased in 2024, it is forecasted to rise to between 2.0% and 3.5% in 2025. The government's efforts to manage inflation and the rising cost of living will play a role in shaping the economic outlook.
• Global Economic Conditions: The sources note that global uncertainty remains a challenge. The performance of the global economy and factors like commodity prices will influence Malaysia's growth prospects.
• Government's Fiscal Management: The government aims to reduce the fiscal deficit to 3.8% of GDP in 2025, with a long-term goal of 3%. Continued fiscal discipline and effective implementation of revenue-generating measures, such as the 2% tax on dividend income exceeding RM100,000, will be important for achieving these targets and supporting sustainable economic growth.

Please note that this information is derived solely from the sources I've uploaded to my AI writing program. For a complete understanding of Budget 2025, including potential updates and clarifications, please visit this website for official government publications. Consulting with financial professionals is highly recommended.

Here are the key economic changes and incentives introduced in Budget 2025:

Key Economic Changes

• Introduction of a 2% dividend tax on annual dividend income exceeding RM100,000 received by individual shareholders (resident, non-residents, and individuals who hold shares through nominees) with certain exemptions. This will be effective from the Year of Assessment (YA) 2025. Exemptions include dividends from abroad, dividends distributed from the profits of companies with pioneer status and reinvestment allowances, and dividends paid from the profits of shipping companies exempt from tax. This tax will not apply to distributions from the Employees Provident Fund (EPF), Amanah Saham National Bumiputera (ASNB), Lembaga Tabung Angkatan Tentera (LTAT), or unit trusts.
• Expansion of the Sales Tax and Service Tax (SST) regime: The SST will be implemented more progressively, in a manner that does not burden the rakyat. Sales Tax will not be levied on basic food items but will be levied on non-essential goods such as imported premium goods. Examples provided were avocados and salmon. Service Tax will be expanded to include new taxable services such as commercial service transactions between businesses (B2B). The progressive SST regime will be implemented effective 1 May 2025. The government will conduct engagement sessions with relevant stakeholders and industries before finalizing the scope of expansion and the relevant tax rates.
• Introduction of a Carbon Tax on the iron and steel, and energy industries by 2026. This is to encourage the adoption of low-carbon technologies. The proceeds will be used to fund green research and technology programs.
• Increase in excise duty rate for sugar-sweetened beverages in phases from 1 January 2025.
• Change in threshold for the windfall profit levy on crude palm oil. The levy will now be imposed on the production of fresh fruit bunches of palm oil when the market price of crude palm oil surpasses the new threshold of RM3,150 for Peninsular Malaysia and RM3,650 for Sabah and Sarawak (previously at RM3,000 and RM3,500 respectively) with effect from 1 January 2025. The market price range structure and export duty rates for crude palm oil will be revised from 1 November 2024. The current treatment for crude palm oil exports from Sabah and Sarawak will be maintained.
• Rationalization of subsidies via a targeted approach on the top 15% without burdening the remaining 85% of the Rakyat. This includes the removal of subsidies for RON95 petrol by mid-2025 and a gradual reduction in education and public healthcare subsidies for the top 15% income group.
• Increase in minimum wages. The minimum wage rate will be increased from RM1,500 per month to RM1,700 per month with effect from 1 February 2025.
• Implementation of a self-assessment system for stamp duty in phases starting from 1 January 2026.

Key Economic Incentives

• Introduction of a New Investment Incentive Framework (NIIF) that focuses on high-value activities and economic spillover to the country. The NIIF is expected to be implemented in the third quarter of 2025.
• Tax incentives to promote the logistic sector. Logistics companies that carry out qualifying Smart Logistics Complex (SLC) operations will be given an investment tax allowance of 60% for five years, to be utilized against up to 70% of statutory income.
• Tax incentives to strengthen the local supply chain. A Supply Chain Resilience Initiative will be introduced. Double deduction for expenditure of multinational enterprises (MNEs) of up to RM2 million per annum for three consecutive years. MNEs or their suppliers who participate in joint venture investments with Malaysian suppliers will be given a tax deduction on the investment made. Local suppliers will be eligible for an outcome-based tax incentive package.
• Concessionary tax rates and financial support for Micro, Small and Medium Enterprises (MSMEs).
• Extension of personal income tax reliefs with broader coverage to include disabled individuals and senior citizens. See "Personal Income Tax" section below for details.
• 10-year extension of the tax exemption on foreign-sourced income received by individuals in Malaysia. Resident individuals will be exempt from tax on foreign-sourced income received in Malaysia up to the year 2036, provided such income has been subjected to income tax in the country from which it was received.
• Measures to mitigate the impact of Global Minimum Tax (GMT). The Government is committed to streamlining existing incentives, introducing non-tax incentives and studying the feasibility of a “Strategic Investment Tax Credit”.
• Provision of higher cash handouts. Recipients of the Sumbangan Tunai Rahmah (STR) under the Household category will receive RM100 per month starting from April 2025. Recipients under the Single category will receive STR of RM600 per month.

Personal Income Tax

Several tax reliefs will be increased or expanded, including:

• Education and medical insurance premium payments: up to RM4,000
• Medical expenses: up to RM10,000, including medical and health insurance and takaful products with co-payment features, as well as disease detection tests, disease detection test kits, and the purchase of health screening equipment
• Treatment and rehabilitation expenses for children with autism: up to RM6,000
• Interest expenses incurred by first-time home buyers: Up to RM7,000 for a home valued up to RM500,000 Up to RM5,000 for a home valued between RM500,001 and RM750,000 Claimable for three consecutive YAs, for sales and purchase agreements completed between 1 January 2025 and 31 December 2027
• Purchase of electric vehicle chargers expanded to cover the purchase of food waste composting machines for household use until YA 2027. This can be claimed once every three years
• Full parental medical examination expenses expanded to cover the cost of vaccinations
• Net savings in the National Education Savings Scheme (SSPN) extended for another three years
• Sports equipment and activities expenses extended to such expenses incurred for parents
• Medical care expenses for parents expanded to include grandparents
• Contributions made by individuals to Private Retirement Schemes and Deferred Annuities extended up to YA 2030
• Persons with disabilities: Individual relief - RM7,000 Relief for disabled spouses - RM6,000 Relief for disabled unmarried children - RM8,000

Additionally:

• The individual income tax exemption on childcare allowance will be extended to cover allowances for the care of senior citizens, i.e. parents and grandparents.
• Accelerated capital allowances, to be claimed over a two-year period, will be given on the purchase of information, communication and technology (ICT) equipment, computer software packages, and consultancy fees for e-invoicing purposes.

Key Differences in the Implementation of the SST Regime

Budget 2025 outlines a more progressive implementation of the Sales and Service Tax (SST) regime, effective from 1 May 2025. Here are the key differences outlined in the sources:

Sales Tax

• Exemption on Basic Food Items: Sales Tax exemption will be maintained on basic food items consumed by the rakyat.
• Levy on Non-Essential Goods: Sales Tax will be levied on non-essential items, specifically targeting imported premium goods. Examples provided include avocados and salmon.

Service Tax

• Expansion to Include B2B Transactions: The scope of Service Tax will be expanded to include new services, such as commercial service transactions between businesses (B2B).

Consultation with Stakeholders

• The government plans to conduct engagement sessions with relevant stakeholders and industries before finalizing the scope of expansion and the relevant tax rates for both Sales Tax and Service Tax. This is intended to ensure smooth implementation and avoid unintended consequences.

Overall Goal

• The overarching goal of the progressive SST regime is to ensure that the implementation does not burden the rakyat.

The sources do not provide specific details regarding the extent of the tax increases or the full range of goods and services that will be affected by these changes. Further information will likely be released following the government's consultations with stakeholders.

Rationale for the 2% Dividend Tax

While the sources do not explicitly state the rationale behind the decision to introduce a 2% tax on dividend income exceeding RM100,000, they do provide context about the government's overall economic strategy and revenue-generating objectives. By piecing together information from various sections within the sources, a potential rationale can be inferred.

• Widening the Tax Revenue Base: Budget 2025 is characterized by a focus on "widening the nation's tax revenue base". The introduction of the dividend tax, alongside measures like the expansion of the SST and the planned introduction of a carbon tax, seems to align with this objective.
• Fiscal Sustainability: The government is aiming to reduce the nation's fiscal deficit to 3.8% in 2025, with a long-term goal of reaching 3%. Increasing revenue streams through new taxes, such as the dividend tax, could contribute towards achieving this fiscal sustainability target.
• Focus on High-Value Activities: The new Investment Incentive Framework (NIIF) emphasizes attracting "high-value investments" to stimulate balanced economic growth. It's possible that the dividend tax is seen as a way to partially offset the revenue impact of these investment incentives while still encouraging growth in desired sectors.
• Targeted Approach: The dividend tax specifically targets individuals with annual dividend income exceeding RM100,000, suggesting an intention to focus on higher-income earners. This aligns with the government's broader efforts to reduce income inequality and ensure equitable economic growth.

Key Considerations:

• The sources also highlight the government's commitment to not reintroducing the Goods and Services Tax (GST) until income levels of the rakyat increase. Therefore, the dividend tax could be considered an alternative revenue-generating measure in the absence of GST.
• The government's decision to maintain the RON95 fuel subsidy for 85% of the population and enhance cash assistance programs indicates a concern for protecting lower- and middle-income groups. This could suggest that the dividend tax is intended to primarily impact higher-income individuals who are less reliant on such subsidies and assistance.

It's important to note that this rationale is inferred from the provided context and does not represent an explicit statement from the sources.

How the Dividend Tax Affects Non-Resident Individuals?

The proposed 2% tax on dividend income exceeding RM100,000 will apply to non-resident individuals, alongside resident individuals and those holding shares through nominees. This tax comes into effect from the Year of Assessment (YA) 2025.

The sources do not explicitly detail how the tax will be collected from non-resident individuals. However, one source notes that it "will be interesting to see how the tax will be collected from such individuals", implying that the mechanism for collecting this tax from non-residents may be more complex than for residents.

Exemptions and Scope:

The same exemptions that apply to resident individuals also apply to non-resident individuals. These include:

• Dividends from abroad
• Dividends from companies with pioneer status and reinvestment allowances
• Dividends paid from the profits of tax-exempt shipping companies

The tax also does not apply to distributions from:

• Employees Provident Fund (EPF)
• Amanah Saham National Bumiputera (ASNB)
• Lembaga Tabung Angkatan Tentera (LTAT)
• Unit trusts

Potential Implications:

While the sources do not explicitly discuss the implications for non-residents, the introduction of this tax could potentially:

• Reduce the attractiveness of Malaysian investments for non-residents seeking dividend income.
• Lead to additional administrative burdens for non-resident individuals in complying with Malaysian tax regulations.
• Prompt non-resident investors to explore alternative investment strategies or jurisdictions with more favorable tax treatment of dividend income.

It's important to note that these are potential implications and the actual impact will depend on the specific circumstances of each non-resident individual, as well as any further clarifications or guidelines issued by the Malaysian government.

EPF Contributions for Non-Residents

Budget 2025 proposes that Employees Provident Fund (EPF) contributions will be made mandatory for non-Malaysian employees, in phases. The sources do not provide specific details on the timeline or implementation of this policy.

Currently, the sources do not offer information on how EPF contributions would work for non-resident individuals. However, based on existing EPF guidelines for Malaysian citizens and permanent residents, some possible features of the system for non-residents could be:

• Contribution Rates: Specific contribution rates may be established for both employers and non-resident employees.
• Account Structure: Similar to existing EPF accounts, there could be separate accounts for retirement savings, medical expenses, and other permitted withdrawals.
• Withdrawal Options: Guidelines would need to be established regarding withdrawal options for non-residents, especially upon leaving Malaysia.
• Tax Treatment: Clarification would be required on the tax implications of EPF contributions and withdrawals for non-residents.

It's important to emphasize that these are potential considerations based on the existing EPF framework for residents and not definitive statements about the proposed system for non-residents. Further details are expected to be released by the Malaysian government as the policy is developed.

Rationale for Mandatory EPF Contributions:

While the sources don't explicitly outline the rationale for extending mandatory EPF contributions to non-residents, it likely aligns with broader policy goals, such as:

• Social Protection: Providing a mandatory savings scheme for non-resident workers could offer them a degree of social protection and financial security during their employment in Malaysia.
• Retirement Savings: Requiring contributions could encourage non-residents to build up retirement savings, even if their stay in Malaysia is temporary.
• Greater Equity: Extending the EPF system to non-residents could promote greater equity in terms of social security coverage and access to retirement savings benefits.

Potential Implications:

The implementation of mandatory EPF contributions for non-residents could have various implications for:

• Employers: Increased administrative burden and potential adjustments to payroll systems to accommodate EPF contributions for non-resident employees.
• Non-Resident Employees: Reduced take-home pay due to EPF contributions, but also access to a savings and retirement scheme.
• Malaysian Economy: Increased inflow of funds into the EPF, potentially boosting domestic investment.

Further Information Needed:

To fully understand how EPF contributions will work for non-residents, more details are required from the Malaysian government regarding:

• Implementation Timeline: When the policy will be implemented and any phased rollout plans.
• Contribution Rates: The percentage of salary contributed by both employers and non-resident employees.
• Account Structure and Withdrawal Rules: How EPF accounts will be managed for non-residents, and specific withdrawal options available to them.
• Tax Implications: Tax treatment of EPF contributions and withdrawals for non-residents under Malaysian law.

Requirements for Smart Logistics Complex (SLC) Investment Tax Allowance

Companies can qualify for an investment tax allowance if they meet the requirements for Smart Logistics Complexes (SLCs). Budget 2025 proposes an investment tax allowance of 60% on qualifying capital expenditure incurred for a period of five years, to be set off against 70% of statutory income.

To be eligible, companies must meet the following requirements:

Applications must be received by the Malaysian Investment Development Authority (MIDA) between 1 January 2025 and 31 December 2027.

Eligible SLC Companies

The sources identify two types of eligible companies:

• SLC Investor and Operator: This refers to a company that invests in the construction of smart warehouses and undertakes eligible logistics services activities.
• SLC Operator: This refers to a company that leases a smart warehouse under a long-term lease (at least 10 years) and undertakes eligible logistics services activities.

Eligible Logistics Services

To qualify for the allowance, the SLC company must undertake one or more of the following eligible logistics services:

• Regional distribution centers
• Integrated logistics services
• Storage of hazardous goods
• Cold chain logistics

Warehouse Requirements

The smart warehouse must meet these criteria:

• Minimum Build-up Area: A minimum build-up area of 30,000 square meters.
• IR 4.0 Elements: Adaptation of at least three Industrial Revolution (IR) 4.0 elements. Examples of IR 4.0 technologies include artificial intelligence (AI), the Internet of Things (IoT), and blockchain.
• Other Conditions: The sources mention that other conditions may be prescribed, but they do not provide specifics.

Rationale for the Incentive

The investment tax allowance for SLCs aligns with several key themes within Budget 2025:

• Enhancing Supply Chain Efficiency: The allowance aims to encourage the adoption of advanced technologies in logistics, thereby improving the overall efficiency and resilience of the supply chain.
• Attracting High-Value Investments: By incentivizing investment in SLCs, the government hopes to attract high-value projects that contribute to economic growth and create high-income job opportunities.
• Promoting Digitalization: The requirement for incorporating IR 4.0 elements emphasizes the government's focus on promoting digitalization across various sectors.

It's important to note that the sources provide a general overview of the SLC investment tax allowance and its eligibility requirements. Companies interested in applying for this incentive should consult with MIDA or seek professional advice to ensure they fully understand and meet all the necessary conditions.

The projected growth of 4.5% to 5.5% for the Malaysian economy in 2025 reflects a positive outlook, driven by both domestic and external factors. The government's focus on attracting high-value investments, promoting digitalization, and enhancing key sectors through targeted initiatives is expected to support this growth trajectory. However, navigating global economic uncertainties and managing inflationary pressures will be crucial for ensuring sustained and inclusive economic development.

TLDR

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About Jean

Jean Ng is the creative director of JHN studio and the creator of the AI influencer, DouDou. She is the Top 2% of quality contributors to Artificial Intelligence on LinkedIn. Jean has a background in Web 3.0 and blockchain technology, and is passionate about using these AI tools to create innovative and sustainable products and experiences. With big ambitions and a keen eye for the future, she's inspired to be a futurist in the AI and Web 3.0 industry.