By Soh Lian Seng, KPMG Malaysia Head of Tax
Budget 2027 presents an important opportunity for the government to continue balancing three equally important priorities: Caring for the rakyat, maintaining Malaysia’s economic competitiveness and safeguarding the country’s fiscal sustainability.
The government has introduced various targeted measures to assist vulnerable households. Looking ahead, there may also be merit in providing carefully calibrated support to the working middle class, particularly the M40 and the “sandwich generation”, as many within this group are supporting children and ageing parents, meeting housing and healthcare costs, investing in new skills and preparing for retirement, but may not qualify for direct financial assistance.
KPMG Budget 2027 wishlist would therefore go beyond tax concessions to include practical reforms that support households, simplify compliance, broaden participation in the tax system and strengthen sustainable revenue collection.
Modernise personal tax reliefs
As a starting point, the government could review personal tax reliefs that have remained unchanged for some time and whose real value has been affected by higher living costs.
Consideration could be given to increasing the general individual relief from RM9,000 to RM12,000, and the spouse relief from RM4,000 to RM5,000. To ensure these reliefs remain relevant over time, the government may also consider introducing a structured review every three years, considering indicators such as inflation, household income and changing family expenditure patterns.
Additional targeted reliefs could also be considered for:
- preventive healthcare and wellness;
- residential rental payments supported by a duly stamped tenancy agreement;
- caregiving expenses for elderly parents and parents-in-law;
- domestic tourism expenditure and
- mental health and wellbeing support.
These measures should be properly targeted and supported by documentation. For example, linking rental relief to a duly stamped tenancy agreement would not only assist renters, but could also encourage the formalisation of the rental market and improve the visibility of rental income for tax compliance purposes.
A dedicated caregiver relief of RM3,000 could also recognise the increasing responsibilities of taxpayers caring for elderly parents or parents-in-law aged 70 and above. This would be especially relevant to the middle-class sandwich generation, which is often supporting both younger and older family members simultaneously.
Consider a calibrated personal income tax reduction for the M40
Apart from reviewing tax reliefs, the government could consider a modest and carefully calibrated reduction in selected personal income tax rates or bands that principally affect middle-income taxpayers.
The objective should not be to introduce broad-based tax reductions that may materially affect government revenue. Instead, any adjustment could be designed as targeted support for taxpayers whose income has increased nominally but whose purchasing power remains under pressure from rising household expenses.
A measured adjustment could help preserve disposable income and sustain domestic consumption, while recognising the contribution of the M40 to Malaysia’s tax base and economy. It could also complement the government’s existing assistance programmes, which are understandably more focused on lower-income and vulnerable households.
Expand the individual tax rebate
The existing individual tax rebate could also be updated to better reflect current income and cost-of-living conditions.
One proposal is to increase the chargeable income eligibility threshold from RM35,000 to RM80,000, while increasing the rebate from RM400 to RM500. This would extend modest but meaningful assistance to more lower- and lower-middle-income taxpayers.
The rebate should remain simple and be automatically reflected in the taxpayer’s computation, without requiring a separate application or additional documentation. This would support households without adding unnecessary administrative complexity for either taxpayers or the Inland Revenue Board of Malaysia (IRB).
Modernising the administration of dividend taxation
As Malaysia continues to broaden its tax base, attention should also be given to ensuring that new tax measures are administered in a manner that is efficient, practical and taxpayer-friendly.
The recently introduced taxation of dividend and distribution income exceeding the prescribed threshold is an example where further refinements may be considered from an administrative perspective.
While the policy objective of broadening the tax base is understandable, the current reporting and compliance process may become increasingly complex where taxpayers receive dividends from multiple companies, investment vehicles and fund managers throughout the year.
Budget 2027 could consider exploring mechanisms that simplify administration and improve certainty for taxpayers. One possible approach is to study whether elements of a withholding tax mechanism or a centralised reporting framework by paying entities could be introduced over time. Such measures could reduce the need for extensive year-end tracking by individual taxpayers while improving the accuracy of reporting and tax collection.
The objective should not necessarily be to increase or decrease the tax burden, but rather to make compliance simpler, improve transparency and reduce unintentional non-compliance. A tax system that is easy to understand and administer is ultimately more effective for both taxpayers and the government.
Reviewing Malaysia’s indirect tax framework
The discussion should perhaps not be framed as simply choosing between Goods and Services Tax (GST) and the Sales and Services Tax (SST). Rather, the focus should be on identifying the tax framework that best supports Malaysia’s long-term fiscal sustainability, competitiveness and ease of compliance.
If the government intends to retain SST, there may be merit in incorporating some of the strengths associated with GST, particularly measures that reduce tax cascading, enhance business-to-business relief and improve overall neutrality across the supply chain. The aim would be to preserve the simplicity of SST while mitigating some of the cost layers that businesses currently experience.
A hybrid approach could be considered if it achieves these objectives. However, if such a model becomes overly complex, it may be worthwhile for the government to undertake broader consultation with both the rakyat and the business community to better understand their preferences and concerns.
Should future consultation indicate strong support for the return of GST, policymakers may wish to re-examine the option, taking into account appropriate safeguards, protection for vulnerable groups, efficient refund mechanisms and sufficient implementation lead time.
Conversely, if the majority prefers to retain SST, then a comprehensive review of exemptions and business-to-business relief mechanisms could be undertaken to improve efficiency and reduce the cost of doing business.
Ultimately, the objective is not whether the system is called GST or SST, the objective is to have a tax system that is fair, efficient, transparent, business-friendly and capable of generating sustainable revenue for the nation.
Continue strengthening voluntary compliance through corporate tax governance
Malaysia should also continue moving towards higher voluntary compliance through stronger corporate tax governance. The Tax Corporate Governance Framework (TCGF) introduced by IRB, is an important milestone in Malaysia’s cooperative compliance journey.
However, the cost, scope and potential consequences of weaknesses discovered during onboarding may discourage some otherwise responsible taxpayers from participating. The existing framework covers numerous areas, including corporate income tax, withholding tax, employer obligations, transfer pricing, stamp duty and other specialised taxes.
To encourage wider adoption, the government could consider three enhancements:
- Enhanced tax deduction
The current tax deduction for expenditure incurred on TCGF documentation and independent reviews could be increased through an enhanced deduction, accelerated deduction or temporary double deduction. This would recognise that expenditure on tax governance strengthens the country’s overall compliance environment and should be encouraged as an investment in good corporate governance.
- Phased or sub-certification
Rather than requiring companies to achieve full maturity across every tax area before any recognition is granted, taxpayers could be allowed to obtain certification progressively.
Tax-by-tax certification could also be considered, allowing a taxpayer to obtain recognition in corporate tax, transfer pricing, withholding tax, employer tax or stamp duty before progressing towards full certification.
This recognises that a company may have strong governance in some areas while continuing to improve others. The goal should be to encourage more businesses to begin the journey, rather than limiting participation to organisations that have already achieved a near-perfect state.
- Onboarding safe harbour and penalty protection
A clearly defined onboarding safe harbour could provide taxpayers with an opportunity to voluntarily disclose and rectify non-fraudulent control gaps, technical errors or historical compliance weaknesses identified during the TCGF review.
Where a taxpayer makes full disclosure, cooperates with IRB and completes corrective action within an agreed period, consideration could be given to providing certainty of penalty remission or no penalty, subject to appropriate safeguards. Cases involving fraud, deliberate evasion, wilful misconduct or intentional concealment should clearly remain outside the safe harbour.
This would reinforce that TCGF is a governance and cooperative compliance programme, rather than an enforcement exercise. It would reward transparency and responsible behaviour while allowing IRB to direct its resources more effectively towards higher-risk cases.
Simplify the stamp duty framework
Finally, Budget 2027 could prioritise the simplification of stamp duty, particularly as Malaysia transitions towards greater self-assessment.
The current treatment can vary depending on the nature, wording and legal character of an instrument. This may create uncertainty for routine commercial documents and increase the risk of inadvertent non-compliance.
A review could focus on:
- simplifying and consolidating duty categories;
- revising the First Schedule to the Stamp Act;
- providing clearer treatment for common commercial and employment documents;
- reducing ambiguity for instruments executed electronically;
- simplifying relief and exemption conditions;
- publishing practical examples and consistent valuation guidance; and
- providing appropriate transitional or penalty-relief arrangements for genuine errors during the move towards self-assessment.
Simplification should not be seen as weakening enforcement. On the contrary, simpler rules are easier to understand, administer and comply with. This can improve voluntary compliance, reduce disputes and allow IRB to focus its resources on deliberate rather than inadvertent non-compliance.
Taken together, targeted personal tax reliefs, calibrated support for the M40, a more relevant tax rebate, streamlined dividend tax administration, a clearer direction for indirect taxation, stronger incentives for corporate tax governance and a simpler stamp duty framework can help advance the broader objective.
These recommendations are not intended to advocate broad-based tax concessions or reduce the government’s revenue base. They are aimed at strengthening household resilience, improving the ease of compliance, encouraging transparency and building a more sustainable tax system. As recognized in the Budget 2027 memorandum, caring for the rakyat and safeguarding fiscal sustainability need not be competing objectives. With carefully calibrated measures, Malaysia can work towards achieving both.
At its core, the wishlist for Budget 2027 is guided by one central principle: A good tax system should raise sustainable revenue while making it easier for taxpayers to comply voluntarily.
