The Malaysian Reserve: Malaysia recalibrates tax system for resilience reform
Originally published in The Malaysian Reserve, 5th November 2025
Mr Chow Chee Yen, Senior Executive Director of Tax Advisory & Compliance and Mr Alan Chung, Senior Executive Director of Indirect Tax & Transfer Pricing recently spoke to The Malaysian Reserve to give their thoughts on the Budget 2026, particularly on the foreign income exemption, expansion of chilcare tax relief and the remission of penalties for stamp duty.
Excerpts from the article:
The Budget 2026, tabled earlier in October, sets a reformist tone with measures that expand individual tax reliefs, tighten indirect-tax compliance and extend Sales and Service Tax (SST) coverage — signalling the government’s bid to balance social support with fiscal sustainability.
The fiscal package, the first under the 13th Malaysia Plan (MP13) 2026-2030, outlines a more measured approach to revenue generation after two years of post-pandemic recovery.
Its focus falls on three priorities — broadening the tax base, easing household burden and ensuring that compliance frameworks evolve alongside Malaysia’s economic reforms.
At the Budget Highlights and Recent Tax Developments seminar organised by Grant Thornton (M) plt recently, Human Resources Minister Steven Sim Chee Keong reminded participants that tax and growth policies must also uphold fairness at work and in society.
“The truly modern economy is not judged by its top professions alone, but by how it treats the vast majority of workers whose labour, though often undervalued, is essential to the functioning of our society,” he said.
Budget 2026 builds on that spirit by strengthening household protection through individual tax revisions and adjusting indirect taxes to reflect modern consumption patterns, while ensuring the fiscal deficit continues its path toward 3% of GDP by 2030.
Individual Tax, Household Reliefs
For individuals, the budget introduces targetted reliefs to ease financial pressure on households, especially working parents.
Among the most significant measures is the expansion of the childcare tax relief from RM3,000 to cover children up to 12 years old, now extended to include daily-care and after-school transit centres.
Tax Advisory and Compliance senior ED Chow Chee Yen said the move offers meaningful support for dual-income families navigating rising living costs and childcare responsibilities.
“The government’s decision to extend the RM3,000 childcare tax relief to cover children up to 12 years old and to expand it to include daily care and after-school transit centres, is certainly a welcomed move for busy working parents,” he told The Malaysian Reserve.
The budget also enhances personal tax reliefs for education and health spending, aligning with the government’s push for long-term social mobility and family wellbeing.
Taxpayers can now claim expanded deductions for technical and vocational training, recognising the role of upskilling in driving Malaysia’s labour-market competitiveness.
Medical-related reliefs have also been adjusted to include expenses for preventive healthcare, a step in line with the Health White Paper’s focus on early detection and wellness.
Grant Thornton’s analysis notes that such expansions not only benefit individual taxpayers but also support the broader policy objective of nurturing a productive, adaptable workforce.
Budget 2026 further clarifies the mechanism for foreign-source income exemption for individuals, maintaining Malaysia’s attractiveness for global talent while safeguarding revenue through clear reporting obligations.
As Malaysia transitions toward a more knowledge-based economy, these individual-tax adjustments are designed to encourage participation in the formal sector while improving disposable income for middle-income 40% (M40) earners.
Indirect Tax, SST expansion
On the indirect-tax side, Budget 2026 continues the rationalisation of the SST system introduced last year.
The government has announced an expansion of SST coverage to include logistics, brokerage, underwriting and karaoke services, broadening the tax base to reflect the growth of the modern services sector.
Indirect Tax and Transfer Pricing senior ED Alan Chung said the decision reflects a pragmatic effort to strengthen compliance while allowing businesses time to adapt to new self-assessment requirements.
“It is commendable for the government to consider remission of penalties for stamp duty as duty payers familiarise themselves with the implementation of self-assessment from next year,” he explained to TMR after his presentation. However, he said duty payers must continue to observe all stamping requirements and ensure that the applicable stamp duties are duly paid in accordance with the law.
The introduction of digital stamping and the shift toward self-assessment are expected to improve administrative efficiency, reduce delays and increase transparency in property and business transactions.
Chung added that the approach mirrors international best practices in tax modernisation, ensuring that Malaysia remains competitive while maintaining a fair compliance burden.
The SST rate of 8% will remain unchanged for most taxable goods and services, though selected luxury and discretionary items are subject to adjusted rates.
While businesses are required to re-evaluate their supply-chain exposure to SST, the Finance Ministry has also committed to improving digital platforms for tax filing and refunds, signalling continued investment in public-sector digitalisation.
Grant Thornton’s analysis suggests that these measures are part of a broader effort to rebalance revenue between direct and indirect taxes, which now account for a growing share of total collections.
This rebalancing is crucial as the government reduces dependence on petroleum-related revenue, which has fallen from about 30% in 2019 to 12% projected in Budget 2026.
Corporate, Compliance Reforms
For corporate taxpayers, the extension of the foreign-source income exemption until Dec 31, 2030, provides welcome certainty to multinational investors operating regional hubs in Malaysia.
Chow said the continuation of this exemption signals policy consistency and reinforces Malaysia’s standing as a preferred destination for headquarters and shared-services operations.
He added that the policy offers greater certainty for businesses by ensuring consistency in tax treatment, while at the same time strengthening Malaysia’s position as a competitive and attractive regional hub for investment and corporate operations.
Read the full article on The Malaysian Reserve here.